IRS Rules Complicate Compensation Reporting Requirements

Reporting executive compensation is necessary—and complex—under IRS Form 990 rules.

March 8, 2013

For state-chartered credit unions, completing the section of Internal Revenue Service (IRS) Form 990 that discloses executive compensation each year can be a difficult and confusing task. However, credit unions that fail to file the form risk losing their tax-exempt status.

Complying with Form 990 requirements is important beyond retaining tax-exempt status. As the financial services industry continues to be tarnished by the perception of excessive executive salaries and perks, the credit union movement must maintain its reputation for reasonable and transparent executive compensation.

Unfortunately, the data required by the IRS for Form 990 can sometimes present a distorted, out-of-context view of what credit unions pay top executives. A bonus or payment of a supplemental retirement benefit, for example, isn’t identified as such, so it may appear that this money is part of the executive’s regular, annual compensation.

Perhaps this will change as the IRS refines the reporting requirements. But meanwhile, filing the form on time remains the best policy.

Supplemental compensation reporting

Compensation Data for Form 990

The IRS requires state-chartered credit unions to file Form 990 annually. Part of the form requires compensation data for officers, directors, trustees, key employees, and the top five most highly compensated employees (more than $100,000).

In some cases, supplemental executive benefits must be disclosed, including:

  • Section 457(b) eligible deferred compensation plans;
  • Section 457(f) ineligible deferred compensation plans;
  • Split-dollar life insurance (including “loan regime” and “economic benefit regime” programs); and
  • Supplemental welfare benefits (such as executive bonus life insurance, disability income insurance, and long-term care insurance).
These and other supplemental benefits are subject to specific rules about whether and to what extent they must be reported.

One of the more complex aspects of Form 990 is disclosing supplemental executive compensation.

For example, deferred compensation plans such as 457(b) and 457(f) split-dollar insurance programs and other executive insurance benefits including life, disability, and long-term care policies are generally reported on Form 990.

However, it’s usually not as simple as providing supplemental benefits as reported on an executive’s W-2.

Form 990 often requires multiple disclosures for each supplemental benefit. A 457(f) program, Form 990, for example, may require separate entries for funds the credit union contributes to the 457(f) account, the amount for which the employee is vested and/or actually paid during the tax year, and the amount of the benefit subject to “substantial risk of forfeiture.”

Substantial risk of forfeiture refers to a benefit that is payable only after the employee achieves a certain benchmark, such as years of service.

For a split-dollar life insurance program, Form 990 requires the credit union to state the current value of the protection. The IRS has published guidelines to help calculate this value.

Watch for changes every year

The upshot: Credit unions must work closely with providers of supplemental executive benefits to be sure Form 990 is properly completed.

The IRS regularly updates its Form 990 requirements, so it’s critical to review the form’s instructions each year.

SCOTT ALBRACCIO is CUNA Mutual Group’s Executive Benefits sales specialist manager. Contact the Executive Benefits team at 800-356-2644, ext. 6651035 or at

Free white paper: In association with CUNA Mutual Group, the accounting and advisory firm Baker Tilly Virchow Krause has prepared a white paper as a guide to reporting the executive benefits offered by CUNA Mutual Group. Download your free copy of “Executive Compensation Reporting on Form 990 for State Chartered Credit Unions” here.