"Information that we gathered from the NAFCU survey shows that more than 70% of executives in credit unions, and in other industries also, are age 50 or older," Chris Burns-Fazzi, principal of the Charlotte, N.C.-based BFB Gallagher, said during a NAFCU-sponsored webinar. "The current leadership population is aging and starting to rapidly retire. Some had held off on retirement when the market went down in '08 and credit unions and other financial institutions were having various problems."

Additionally, more than 70% of credit union executives are 50 years of age or older, and about 30% of executives will be eligible for retirement over the next five years.

While deferred compensation plans were once offered primarily by large credit unions with assets between $500 million and more than $1 billion, more smaller-asset cooperatives are also offering these executive benefits. Sixty-eight percent of credits in the $150 million to $400 million asset range offer non-qualified plans to executives, according to the NAFCU-BFB Gallagher Executive Compensation and Benefits Survey. In addition, more credit unions are offering these benefits to the entire senior executive team and other lower-level executives.

"Retaining that talent is necessary, and it's expensive to lose talent and replace it," she noted. "That is a big reason for what is going on for that increase in retention plans."

Perhaps the most popular executive benefit plan is the split dollar loan, in which the credit union makes a loan to an executive to buy a life insurance policy. Though the policy is owned by the executive, it is collaterally assigned back to the credit union. The benefit of this arrangement is that the executive can use the cash surrender value from the policy to withdraw tax-free income during their retirement years. When the executive dies, all the money spent, plus interest, is returned to the credit union if the plan is properly structured and administered.

The 457(f) nonqualified deferred compensation plan provides benefits for executives on a predetermined schedule of payments as long as executives work to that predetermined date. This type of retention tool is used because the executive forfeits their future payments if they leave prior to retirement, according to Meyer Chatfield Group in Jenkintown, Pa. What's more, if the executive is fired, the credit union can recover the cost of what they paid into the plan. Another 457(b) plan is also used to retain highly-compensated executives. Though this plan has contribution limits, it enables executives to put aside more funds for their retirement years and defer payments on state and federal income taxes during their peak earning years.

According to Meyer Chatfield, there is a misconception that credit unions cannot have more than one type of executive benefit plan. In fact, a combination of split dollar arrangements and 457(f) compensation plans can be used for executive benefits.

However, because the structuring and funding of these plans can be complex, it's critically important for credit unions to get professional advice from an institutional executive benefits specialist who has experience serving credit unions.

During CUNA's Governmental Affairs Conference, the credit union division of Meyer Chatfield officially launched a new executive benefit plan named the lifetime income non-qualified solution, or LINQS.

The LINQS product, developed by the Pennsylvania company, has been used on the banking side for at least six years. The company began a soft launch of the LINQS product when Rick Boothby came on board to start the firm's credit union division two years ago. Currently, a handful of credit unions are using LINQS, he said.

Boothby said LINQS was developed to address the rising costs of funding executive benefit plans. In addition, more credit unions are reaching or will be reaching the maximum levels allowed by regulations of funding those plans. That means credit unions may find it more challenging to offer plans to hold on to executives or recruit new talent.

According to Meyer Chatfield, LINQS can provide lifetime retirement income plans for executives with controlled costs of up to 70% less than traditional 457(f) plans. Because LINQS is not funded by life insurance, the plan does not require executives to qualify for medical underwriting or physicals.

The plan is funded through an insurance carrier's annuity and can be integrated with existing retirement plans.

"The LINQS program provides guaranteed income and a guaranteed interest rate on that income, whereas all of the other non-qualified plans don't provide guaranteed income," Boothby said.

With the retention and recruitment of executives more competitive than ever, it could help credit union board members to develop customized compensation and benefit packages as every executive has different lifestyle needs.

"The market's becoming extremely tight, and so once credit unions find the individual who not only has the technical skills but also fits their culture, they have to do what they can to get that person on board, and that's where you're starting to see a lot of creativity take place," Marcus Cotton, vice president of executive recruiting at Credit Union Resources in Houston, explained. "I'll tell you for C-suite executives in the last couple of years, I haven't done two deals that look alike."

For example, according to Cotton, a credit union with more than $200 million in assets successfully recruited a highly qualified CFO by agreeing to pay the entire cost of his health insurance, help him build a custom home and offer a mortgage approved by the credit union.

"The only thing the candidate had to do was move into a brand new home and pay the mortgage," Cotton said.

What credit unions need to keep in mind is that what may be important to an up-and-coming 35-year-old IT executive may not be important to a 50-year-old vice president of lending.

"As a compensation consultant, what we tell our clients all of the time is that benefits must be meaningful and significant to the person you are trying to retain," Burns-Fazzi said.

Another important trend is that more credit union boards are reviewing multiple compensation studies and surveys to make sure their executive salaries, along with attractive bonus and incentive structures, are fair, reasonable and competitive. In addition, boards are also looking at what executives are being paid in other industries, according to BGB-Gallagher. Some credit unions are using compensation studies from Kenexa, which the IRS uses to review reasonable compensation standards for executives across all industries. What's more, ERI also offers compensation studies for not-for-profit organizations, called nonprofit comparables assessors, which can be segmented by city, region, industry and other factors.

"The board is really setting the tone for compensation for all employees in the credit union," Burns-Fazzi explained. "What they do with the top employees filters down to the rest of the employees. A more methodical, continuous approach to compensation benefits is going to be required and a lot of boards are already taking that up because of the talent search and talent retention that is currently needed."