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 how credit unions can plan for the 457f tax implications

In December 2017, the Tax Cuts and Jobs Act (TCJA 2017) added language which addresses compensation for senior executives. The changes from TCJA 2017 impose excise penalties for non-profit organizations (including credit unions), and eliminate the deduction by for-profit organizations (including banks), when compensation to certain employees exceeds $1 million in a year. Compensation packages that include supplemental executive retirement plans (SERP) have long been the standard for attracting and retaining executives as well as providing a guaranteed retirement nest-egg for executives. Particularly for non-profits like credit unions, the TCJA 2017 change could upend many plans.

We spoke with Scott Richardson, JD, CLU, ChFC, the president & CEO of IZALE Financial Group, to decode what this means for credit unions. A long-time strategic partner of BalancedComp as co-presenter of the How to Pay Your CEO webinar, Scott is our go-to expert for clarifying sticky executive compensation tax questions such as this.

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Commercial banking is a major factor in profitability for most community banks and a growing strategic focus for many credit unions. Not only are the margins greater than those for consumer and mortgage lending, but it frequently serves as the entry point to many other fee gathering services, such as remote capture of deposits, wealth management, and treasury services. These services tend to make the relationship “stick.”

The competition for talent and growth within commercial lending has never been higher, and as a result, commercial lenders continue to be among the most highly incentivized individuals in the bank. Further complicating recruitment is the credit analyst position, a notable hot job and the most common feeder position to the commercial lending role.

This all makes it important to think carefully about maximizing the financial institutions return and ensuring the effectiveness of lender compensation by thoroughly evaluating your incentive programs. The plans should motivate the right behaviors, properly consider risk elements, and successfully align compensation with performance.

Are you over or under compensating compared to your peer group? The first step is to evaluate the business priorities of the lending group.

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Some of the hottest jobs right now are in the information technology sector, and it’s creating a boon for talent and a skills gap for recruiters. It’s not industry-specific, because everyone from banks and credit unions to retailers and manufacturers needs this talent pool in spades. And this “problem” isn’t going away anytime soon, with lofty projections through the next decade.

One Million Jobs

That’s how many more open positions than college graduates are projected in the IT sector by 2020, per

There’s a talent shortage and simultaneous spike in demand. Employers have to compete against one another for employees, only driving up the wages of IT positions. And because these positions are transferable across industry, competition exists not only between banks and credit unions, but across unrelated industries. Banks are just as likely to compete with an aviation firm or food startup!

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Since the announcement of the reduction of the U.S. corporate tax from 35% to 21%, 64 banks nationwide have raised their minimum salaries to $15 per hour and/or given up to $1500 bonuses. The participation has increased by 50% since January 1.

Some banks have increased their 401K matching, while others have made significant donations to non-profit work in their communities. This trend impacts the market at large at companies that banks may compete against for talent. For example:

  • Target announced it will raise salaries to $15 per hour by the year 2020.
  • Apple announced it will reinvest $350 billion in the U.S. and add an additional 20,000 jobs during the next five years.
  • Disney announced $1,000 bonuses for 125,000 employees and a $50 million investment in new employee education programs.

Corporations with freed up capital are investing in the war for talent and in their communities, all of which has caused concern for community banks and credit unions wrestling with their compensation strategies. Should they follow suit and raise pay to $15 an hour, or stick with a plan they know and trust?

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Industry-rattling news continues to break this week as we hear of more financial institutions across the country taking advantage of their pending tax savings.

In response, Wells Fargo and Fifth Third Bank announced they would increase minimum hourly pay rates to $15. Additionally, Fifth Third will offer one-time bonuses of $1000 to its employees. These two aren’t alone. More than 40 banks have made similar announcements for wage hikes and/or bonuses.

It has, of course, put HR managers at banks, and credit unions alike, on high alert! Should they follow suit? If so, for all positions or just those that are highly recruitable?

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