LOS ANGELES — If CUs seek to cut executive benefits to cope with an economy one analyst predicts will not recover this year, they should pay attention to a certain section of the IRS code.
That's the advice of Alec Berkman, chairman and chief innovation officer for Executive Compensation Solutions here, who said chopping leadership benefits will increase costs in the long run. Berkman, predicting an economic turnaround in the first part of 2010, told Credit Union Journal that limiting executive compensation and benefits makes "little sense when you have 50 other areas of your operations you should consider first."
That reasoning is "accentuated" by a section 409A of the IRS code, according to Berkman. "The short of it is that 409A has provisions that seriously discourage starting and stopping of benefit plans. If you were to stop an executive retention plan or long-term incentive plan, you would not be able to reinstitute it for three years. And it's pretty obvious that if you waited three years to catch up, you have increased your costs not decreased them. If somebody does not accrue a benefit for three years out of 10 and then has to do it in seven years, the hits to the income statement each year are going to be one-seventh of the total rather than one-tenth."
Berkman said that "creative mitigation of executive benefit costs" will likely remain top of mind with his company's clients throughout the next two quarters. ECS has also been working with credit unions to move portions if their investment portfolios into higher yielding assets that are permissible when used for funding benefits.
