The golden years for some credit union executives are looking pretty bleak, according to a comprehensive survey by D. Hilton Associates on the retirement benefits of credit union executives.
Instead of taking long naps in a hammock, they can expect to spend more long hours at the office. And dreading it, said David Hilton, president of D. Hilton Associates. "What's going to happen is they are going to have to work extra years when they would rather retire, putting pressure on them and their staff."
The result could be that these CEOs will lose interest in their work because their mind is on all the things they would rather be doing in retirement. In addition, Hilton said, the No. 2 and No. 3 executives who had been patiently awaiting their turn at the top spot are going to get frustrated and, perhaps, start seeking positions elsewhere "It will have a trickle down effect," he said. "Nobody wins."
The survey, conducted during the summer of 2003, shows that after more than a decade of high returns on high-tech and telecommunications stocks, self-directed 401(k) plans were hard hit by a three-year bear market, turning retirement dreams into nightmares.
"The market wasn't cooperating," Hilton said. "And people didn't plan for retirement. There was no money in their 401(k)s."
In what they called the nation's first comprehensive investigation of the retirement funding crisis in the credit union industry, D. Hilton Associates found that one in four CEOs running credit unions with more than $50 million in assets have postponed anticipated retirement dates, and that 23% plan to work past age 65 because they cannot afford to retire.
Hilton called that percentage "eye-opening" because "credit unions have been known for being very good to their employees." He predicted that percentage likely would decrease if the survey were conducted today, but "not significantly."
Not surprisingly, most CEOS surveyed said they were frustrated over regulation governing pensions and 401(k) plans that restrict these programs from adequately funding executive retirement income needs.
If it's any comfort, this predicament isn't exclusive to the CU industry, Hilton said. Business Week commissioned studies on retirement trends in 1998 and 2002. The two studies show that etirement age shot up to 54.5 in 2002 from 54.1 in 1998 in respondents 45 and older with incomes of $85,000 or more. Planned retirement for this segment of the population increased to 65 from 63.1.
The Business Week study also showed twice as many retirees in 2002 were working full-time in other occupations than in 1998. Thirty-seven percent said they needed the money, compared to only 25% who had the same response in 1998.
D. Hilton's findings concur as CU executives reported worries that the stock market won't rebound enough to make up their shortfalls and that Social Security will be less generous than it has been in the past. And, it isn't helping that more companies are replacing defined benefits pension plans with defined contribution plans such as 401(k)s that have contribution limitations on highly compensated employees.
Hilton said credit union executives rarely have the opportunity to participate at the maximum level, leaving them with smaller percentages of their final income than percentages received by lesser-paid tellers, for example.
"The 401(k) looks smaller and smaller as your salary goes higher and higher," he said. "And CEO salaries have gone dramatically up. It's like Social Security. The more money you make, the less Social Security looks good to you."
More than half of the respondents said they had no plans to retire before the age of 65. Hilton pointed out that the median age of the survey respondents was 52, suggesting that most of the survey participants expected to be in the workforce for well over another decade. Among those who indicated they would retire early were CEOs of CUs with assets of $200 million to $399.9 million in assets.
That said, there is some good news, Hilton said, as evidenced by the number of CUs that have adopted or have plans in the near future to adopt non-qualified deferred compensation programs, or 457 (f) plans.
"Credit union boards are stepping up to the plate in addressing this issue," he said, noting that 49% of the CUs surveyed with $400 million or more in assets and that 28% of CUs with at least $100 million in assets have such plans.
The survey results also showed that 76% of CU with assets of $400 million or more said they would have 457 (f) plans by the end of 2004. The same was said by more than half of the respondents of CUs with assets of $100 million or more.
And, while the SERP was once an exclusive benefit for CEOs, the survey found more and more CUs also offering them to other senior managers. For CUS with $200 million or more in assets, SERP participation was likely to include two executives in addition to the CEO.
Hilton said the trend is expected to continue as CU boards use SERPs to keep good CEOs from retiring and keep them and other top employees from seeking positions elsewhere.
