Go online to read about Supplemental Executive Retirement Plans and you’ll find articles about the key reasons credit unions and other organizations implement SERPs:
- To go beyond the limitations of regular employee benefits for key executives
- To attract top executive hires by showing that they’re a progressive employer that wants them to do well financially
- To reward an executive who’s doing a great job and
- To retain top-performing leaders.
In your web search, you’ll undoubtedly also find articles that go into the details of the various types of plans, how they’re structured, the benefits they offer, and how to choose among them. My team uses a detailed decision matrix to help evaluate these options for each credit union’s unique situation.
Certainly, which kind of life insurance is the foundation of a SERP is critical.
Yet I think you can’t even dive into that question until you’ve taken another preliminary step that isn’t really covered by the existing SERP content: facilitating two key conversations.
The first of these is a conversation amongst your board members. The second is a conversation between the board and the key executive.
These two conversations—or series of conversations—ultimately need to clarify whether setting up a SERP would support the board’s vision and strategy for the credit union and the work of its key executive, clarify everyone’s expectations for the retention timeframe, and define what SERP success would look like for your organization.
Done well, these conversations will either create alignment or uncover a lack of alignment about these issues before you get too far into the weeds of plan details or implementation. Without these conversations, both sides risk not identifying a solution with the impact they hope for.
Here’s more on each of the key questions these conversations should help you answer, plus some ideas for moving forward with a SERP if that’s the right move for you.
Will a SERP Support Our Credit Union’s Vision and Strategy?
The board sets the vision for where the credit union is going and the strategy for achieving it. The board’s responsibility to hire and compensate a CEO, as well as to set overall human resources policy, should be in service of this organizational vision and strategy.
A board-level conversation about a SERP needs to answer questions like these:
- What talent does the credit union need to hire to deliver on the vision and strategy it has set for the credit union?
- What incentives can that talent find in the marketplace that the credit union will need to compete with?
- What incentives and timeframes appeal to the executive you want to reward or retain?
What Is the Desired Retention Timeframe?
It’s important to find out whether there is alignment between how long the board wants to retain the key executive and how long the key executive wants to stay.
Maybe your board wants to keep a particular executive for the remainder of their career. But the executive ultimately wants to live in some other part of the country. In such a case, a SERP can be effective as a short-term retention tool but probably will not stop that executive from taking an opportunity to live where they ultimately want to live, if that’s their driver and the opportunity arises.
This might not be something the executive wants to reveal. But I learned a long time ago that when you ask someone a question and the answer is, “Well, ah!” they’re trying to formulate an answer that’s less offensive than “no”—but the answer is still “no.”
Candid conversations can clarify expectations, help decide whether a SERP makes sense at all and, if a decision is made to go forward, point toward characteristics of an appropriate SERP. Some SERPs are short-term; some SERPs are career-based; some are portable; some are not.
What Does SERP Success Look Like?
The overarching goal of having a SERP is to lay the groundwork for a predictable transition from one executive to the next. SERP success means your credit union is able to retain the rock star for the agreed-upon timetable or, ideally, for the rest of their career.
If You Decide to Move Forward
If you find or can create good alignment on these strategic concerns, you can look to good plan design to create a SERP that meets agreed-upon objectives. Some key steps in the SERP design process include:
- Be sure you’re getting professional guidance about the complexities of SERPs from experienced professionals with a proven track record who deeply understand SERPs and the insurance products used to support them.
- Insist on thorough plan projections from the SERP providers you consider.
- Expect a comprehensive financial assessment for the executive and the credit union.
- Make sure multiple scenarios are considered and analyzed. This will help ensure your plan is durable and will stand the test of time.
- Set an expectation that the plan provider will assist your credit union with regular reviews of plan performance in the current economic climate and adapt the plan when needed.
Having these conversations may sound easy. But I can attest to the fact that it isn’t. I can also attest to the fact that skipping these conversations can undermine a SERP’s potential for success. If there’s a SERP on your radar, plan to have these conversations before getting into the nuances of implementing it. The executive’s retirement deserves the best planning possible. We’re ready to help you sort through the options.
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This article was originally featured on CUInsight.com
About the Author
Chris J. Jones, CLU®, ChFC®
Partner & Senior Benefits Consultant
Known for his analytical mindset and mathematical precision, Chris works closely with credit unions to design Supplemental Executive Retirement Plans (SERPs) that are not only durable and compliant but also grounded in data that supports long-term performance. With more than three decades in financial services, he has built a reputation for ensuring that every plan rests on solid numbers and delivers on its promise to executives and boards.
Since 2014, Chris and his team have implemented more than 200 split-dollar SERPs for credit unions and nonprofits, each one on track or exceeding its original performance projections.
