CFO Focus: 4 myths of pre-funded benefits portfolios
In all, this investment strategy may offer more flexibility than you think.
As employee benefit costs continue to rise, employers across the United States are searching for innovative ways to reduce this burden. Credit unions also are looking to thwart rising costs. While they are limited to investing in certain types of vehicles, Section 701.19 of the National Credit Union Administration rules and regulations provides relief, granting credit unions the ability to circumvent the scope of Section 703 on permissible investments. Thus, as long as they remain compliant with the regulations, credit unions can deploy investment strategies focusing on otherwise impermissible asset classes, such as corporate bonds and equities, to fund the benefits expense obligation. In this article, we aim to debunk some common misconceptions regarding Section 701.19’s “Benefits for employees of Federal credit unions.”
Institutions have long used insurance products as pre-funding investments. These investments come with their own set of due-diligence requirements, particularly as the structure increases in complexity. It’s important to remember that these products can be complicated and carry risks, so it’s vital to fully understand their nature and risks before purchasing. A securities portfolio is the other, potentially more straightforward, tool in the toolbox for credit unions looking to offset rising costs. Credit unions may use either tool, or both, to satisfy their pre-funding needs.
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