The credit union will need to analyze the costs and benefits of planned investments for employee benefits. The scope of the analysis should include the measurement of the predictable return on the investments and an assessment of how the investment strategy will accomplish the credit union’s benefit-funding objectives. Before purchasing insurance products for employee benefits, a credit union should analyze expected returns using multiple scenarios. A credit union should consider using a range of interest-crediting rates and mortality-cost assumptions for insurance products.
For some insurance products, the net yield (after expense and mortality costs) could be negative, particularly for separate account products. A FCU should measure the predictable return when determining the direct relationship requirement. The potential for unfavorable net yields underscores the importance of carefully evaluating investments used to fund employee benefits costs across multiple scenarios, both currently and into the future.
Time horizon should be considered when investing in fixed income investment funds. A credit union can do its analysis based on the holdings of the investment fund and run multiple scenarios to determine if there’s a predictable return to offset benefit obligation costs over that time horizon.
Last updated September 25, 2017
