Employee benefit plans serve a number of appropriate business purposes, such as helping a credit union attract and retain staff. NCUA regulation § 701.19, Benefits for employees of Federal credit unions, allows FCUs to provide employee benefits, including retirement benefits, to employees and officers. It also allows FCUs to fund employee benefit obligations with investments that are not subject to the investment limitations of the FCU Act and NCUA regulation part 703, Investment and Deposit Activities or, as applicable, part 704, Corporate Credit Unions.
Unsafe and unsound practices related to employee benefit programs in a credit union can vary, from establishing unreasonable benefit plans that can expose a credit union’s net worth to excessive risk, to failing to perform adequate due diligence.
NCUA regulation part 703, Investment and Deposit Activities, applies to FCUs; part 704, Corporate Credit Unions, applies to corporate credit unions. Federally insured, state-chartered credit unions are subject to any applicable state law or regulation.
The investment authority established in NCUA regulation § 701.19, Benefits for employees of Federal credit unions, an lead to investment holdings which are riskier and more complex than otherwise permissible for a FCU. The NCUA has noted an increase in the risk and complexity of employee benefit packages and in the number of FCUs purchasing otherwise-impermissible investments to fund employee benefit plans. Otherwise-impermissible investments range from corporate bonds to insurance products (including split-dollar life insurance).1
The NCUA has observed instances in which a credit union fails to conduct adequate due diligence on employee benefit plans and related investments. The agency expects credit unions to apply appropriate risk management processes before implementing an employee benefit program and on an ongoing basis. For investments related to employee benefits, appropriate investment strategies are necessary to ensure that credit unions are not exposed to an undue amount of risk. Adhering to strong due diligence and risk management practices will enable credit unions to appropriately balance the risks and rewards of granting and funding employee benefit programs. Such practices also reduce undue risk to the share insurance fund.
The NCUA promotes the use of safe and sound business practices for all federally insured credit unions, and will apply the standards outlined in this section of the Examiner's Guide to safety and soundness concerns when applicable. Questions on this material should be directed your immediate supervisor or regional management.
Are credit unions required to offer employee benefits?
An employee benefit is any non-wage compensation a credit union provides an employee. ("BLS Information". Glossary. U.S. Bureau of Labor Statistics Division of Information Services. February 28, 2008. Retrieved November 13, 2015.) This includes many perks that may be offered to employees, their beneficiaries, or dependents.
Federal law generally requires all employers, including credit unions, to:
- Withhold Social Security taxes
- Pay state and local unemployment taxes
- Comply with all workers’ compensation requirements
- Contribute to state short-term disability insurance
- Comply with the Family and Medical Leave Act of 1993 (FMLA)
- Provide employees time off to vote, serve on a jury, or perform military service
Source: “Hire & Retain Employees”. Required Employee Benefits. U.S. Small Business Administration. Retrieved July 1, 2015.
While credit unions are not required to provide additional benefits such as retirement, health plans, or life insurance, most provide additional benefits to effectively compete for talent in the marketplace. The list of employee benefits offered by credit unions is broad and includes, but is not limited to:
- Paid vacations
- Holiday and sick leave
- Retirement plans
- Dental and vision plans
- Life insurance plans
- Health and dependent care flexible spending accounts
- Legal assistance plan
- Adoption assistance
- Transportation benefits
- Relocation assistance
- Wellness programs
- Access to a subsidized cafeteria
- Loan rates that are lower than comparable member loan rates
In addition to general benefits offered to all employees, a credit union may provide senior executive benefits to senior management. Examples of these benefits include access to a company car, paid membership to a local golf or country club, golden parachutes (also known as change-in-control benefits), split-dollar insurance, and SERPs. For more information, see NCUA regulation § 750.4, Permissible golden parachute payments). For more information about senior executive benefits, see Senior Executive Benefit Plans.
The Employee Benefits chapter consists of the following sections:
- Federal Credit Union Rules
- Risks
- Accounting
- Senior Executive Benefit Plans
- Insurance Products Typically Used
- Pre-Purchase Analysis of Investments
- Exam Procedures
- Workpapers & Resources
Last updated September 25, 2017
