Setting up an Employee Benefit Funding Trust

Setting up an Employee Benefit Funding Trust

The need to retain talent has become critical in 2020.

October 19, 2020

The pandemic caused an unprecedented shift in office dynamics, cohesion, and overall career satisfaction for employees and executives all over the world. The influx of stay-at-home orders and public concerns about coronavirus (COVID-19) caused a spike in remote work, and though many credit unions have adapted to changing circumstances with technology, they must apply equal focus to surviving the war on talent.

Establishing and upholding a strong corporate culture has always been important, but the need to retain talent has become critical in 2020’s competitive labor market.

According to SHRM’s Employee Job Satisfaction and Engagement Survey, employees value compensation, benefits, and job security over almost all other aspects of their jobs. Credit unions must engage employees by transcending traditional implementation. They must compete for retention through robust executive and employee benefit packages. However, health care costs are projected to rise by 5.5% per year, growing to a total of $6 trillion by 2027. With more than half of credit union operating expenses being used for compensation and benefit costs, credit unions must find new ways to fund their employee benefits.

What is an Employee Benefit Funding Trust (EBFT)?

An EBFT is a credit union investment dedicated to funding employee benefits, including health insurance, paid time off, 401(k) contributions, executive benefit plans, and more. By using Exchange Traded Funds (ETFs) in the portfolio design of EBFTs, credit union partners have the potential to earn higher investment returns than standard capital investment methods. In contrast to financing employee benefits through life insurance, EBFTs give credit unions the potential for higher returns to protect their operating income, remain responsible to their members, and provide additional funds to employee benefit packages.

EBFTs include non-703 investments, minimize total portfolio risk on the balance sheet, and are actively managed to fund a target expense.

Why set up an EBFT?

Unlike individual stocks or mutual funds, which have the potential to increase volatility in down markets, using broad-index ETFs as the portfolio building blocks can reduce risk and negative impact to income statements during those periods. They incorporate a mixture of low-correlation asset classes, like equities and corporate bonds, based on the specific goals and risk tolerance of each credit union. Though the initial structure of EBFTs incorporates long-term target allocations, unique directives, and constraints, these investment portfolios are actively managed with consideration to market activity and the evolving needs of credit unions. Typically, the asset allocations of EBFTs reflect conservative, balanced, or moderate growth models.

Why have MTC manage your EBFT investments?

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Members Trust Company currently manages $900 million in capital investments for credit unions, and our partners have earned $115 million more in their EBFTs than in their standard investments. Our investment management strategies have been recognized by both Forbes and Morningstar for their ability to manage both risk and return, even during a recession. Our team of investment professionals holds the prestigious Chartered Financial Analyst® designation and employs opportunistic rebalancing strategies, taking advantage of market highs and lows and minimizing risk with fewer, smarter decisions.

With direct access to portfolio managers for full-service support, credit unions can trust that their EBFTs will evolve in accordance with the growing demands for talent retention and market volatility in the post-pandemic world.  

For more information about setting up an Employee Benefit Funding Trust, contact Jason Ritzenthaler.

JASON RITZENTHALER, CFA, CTFA, is co-chief investment officer and director of investments and institutional business at Members Trust Company. Ritzenthaler has provided analytical research and strategy while co-managing exchange-traded fund (ETF) model portfolios.

Members Trust products are (1) Not FDIC Insured, (2) No Bank Guarantee, and (3) May Lose Value. Past performance is not indicative of future results; return comparisons are between a composite of MTC Credit Union EBFT returns and the average yield on investments as reported by the NCUA from 2013 to 2019. Composite returns are gross of management fees; offset of benefit costs cited may not be representative of future benefit cost saving.