Murphy’s law says that anything that can go wrong, will. Recently, some have applied Murphy’s law to what’s known as a collateral assignment split dollar supplemental retirement plan. Having helped credit unions nationwide establish CASD SERPs, I think the recent critiques are extreme and misleading and that a more balanced picture is needed. 

In a CASD SERP, a life insurance policy is purchased by a credit union executive and his employer pays the premiums. Those premium payments are treated as loans to the executive. The executive signs a note for the premium advances, but repayment will almost always come from the policy death benefit, on which the credit union holds a lien, so that the credit union incurs little or no out-of-pocket cost in providing the retirement benefit. Upon retirement, the executive borrows against the policy’s cash value an annual amount that is projected at the outset, but ultimately is determined by the investment performance of the insurer.

Because CASD SERP benefits take the form of policy loans, they are nontaxable to the executive, so a CASD SERP benefit goes 30% to 45% further in after-tax purchasing power than other types of retirement benefits of the same amount. 

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