Credit Union Benefits Prefunding

Time tells us that credit unions, like all of us, can expect expenses to rise. Many of those expenses rise without regard for the economy or the rate of inflation. The cost of employee benefits is a prominent example of a rising expense that leaves credit unions struggling to keep pace. And while many employers are cutting benefits, this is neither the only option, nor the best one.

Benefits prefunding allows credit unions to direct a portion of their excess liquidity into investments to cover certain benefit expenses. Benefits prefunding is most commonly utilized for group health and life insurance premiums, disability insurance, and employer costs associated with employee retirement benefits (e.g., 401(k) plan). With a formal benefits prefunding program, credit unions can direct funds into investments like mutual funds, annuities, equities, and bonds, which have historically provided a return on investment that is more likely to match increases in employee benefit expenses.