Let’s Talk – Seriously – About Retirement

As an industry leader, we are fully engaged in the continued national dialogue around retirement readiness. A major part of that effort is speaking with retirees as well as those still in the active phases of their careers to determine what issues and concerns they have about strategizing for their futures.

To learn more about retiree perspectives, Pentegra regularly commissions a Harris poll to determine the state of the retirement nation. This year we also independently interviewed dozens of retirees for additional insights as part of our Beyond the SmartPath™ initiative.

The results of the survey and follow-up interviews held no spectacular surprises. Among those we interviewed, every respondent echoed the long-standing plea of the retirement industry and our Harris poll results: Save early and often. Most suggested doing this by getting involved as soon as possible in any retirement savings vehicle offered by one’s employer – especially a 401(k), if available – and to contribute enough to take full advantage of employer matching contributions.

Our respondents also universally advocated the truism that it’s never too early – or too late – to start saving for one’s retirement. “The key thing is that the cost of living keeps going up, which makes it difficult to set money aside,” noted one. “But a little something is still better than nothing.”

A recurring theme was that conversations about planning for retirement are not taking place with enough frequency today. Most of the folks we spoke with said they grew up in households where serious advice about the topic was entirely absent.

The establishment of the 401(k) in 1978 changed all that. Workers became more directly involved in the topic, and as a result they tended to offer practical advice to their own children … if not from a young age, then certainly as their kids began weighing, and embarking upon, their own career options.

However, how seriously those children – and successive generations – have taken those talks remains very much in doubt. A constant misnomer that “comes with the territory” of being young is that thinking about retirement is viewed as something that does not need to occur for years to come … a fallacy that is unfortunately all too common.

Although retirement services providers like Pentegra can explain the ins and outs of various retirement savings strategies, the fact that so much misunderstanding, misinformation – or, for lack of a better word, apathy – about retirement planning remains, is a sobering fact. Thus, we are introducing and promoting the hashtag #talkaboutretirement, designed to help spur dialogue among family members, business associates and friends, in addition to industry professionals.

We hope that #talkaboutretirement will indeed become a trending topic – one that continues to trend for some time. Having an open dialogue about how you view your retirement savings (if at all) can only help, both in the short term and the long run.

Pentegra Retirement Services is the NAFCU Services Preferred Partner for Qualified Retirement Plans for Credit Union Employees. More educational resources can be found at www.nafcu.org/pentegra

Getting Down to the ERM Basics

By: Bill Hord, Vice President of Enterprise Risk Management Services for Quantivate.

Most people in the credit union community likely have a basic understanding of Enterprise Risk Management (ERM). But why is it important to the success of your credit union? And more importantly, how do you get started?

Top three things to know about Enterprise Risk Management:

  1. ERM helps credit unions develop strategies to identify the risks and opportunities impacting their strategic objectives.
    • ERM enhances risk response decisions and reduces operational losses by identifying potential risks ahead of time.
  2. ERM helps credit unions mitigate those risks to provide reasonable assurance to the board of directors and management related to achieving their strategic objectives.
    • ERM programs help executive management make better decisions on how risk should be managed and builds confidence with your board and auditors. Having an enhanced risk identification strategy allows your credit union to implement preemptive and proactive practices.
  3. ERM helps credit unions with the alignment of risk appetite and strategy to improve the deployment of capital.
    • A successful ERM program ultimately decreases the number of risk incidents, reduces cost of capital, and increases overall risk awareness at your credit union.

For more on Getting Down to the ERM Basics, join industry expert Bill Hord, Vice President of Enterprise Risk Management Services for Quantivate, for an insightful podcast. He sits down with Devon Lyon, Director of Education for NAFCU, for a high-level overview of enterprise risk management. Bill covers the ins and outs of what ERM is, what success looks like, and how to manage the ERM process. Listen to the  full podcast here.

How Innovative Plan Design Can Contribute to a Credit Union’s Success

Taking a holistic approach to designing any member’s retirement plan is a goal well worth trying to attain. This is especially true when it comes to credit unions, where many of the same factors facing banks today – ever-proliferating technology, competition, and consumer demands – are being felt just as strongly.

Developing an effective and flexible retirement program involves creating a plan that not only assists employees in meeting their retirement goals but that also addresses a credit union’s business needs. Designing the right retirement program requires a keen understanding of an organization’s management philosophy; compensation strategy; competitive considerations and analysis; demographic considerations; the maturity of the institution; and – of critical importance in today’s shifting landscape – the different types of retirement plans available.

We have identified two basic approaches to developing a business’s employee benefits program. First is the objective approach, wherein one takes into consideration what kind of balancing of benefits is needed for employees; after all, a 50-year-old employee’s needs are vastly different than a 25-year-old’s.

With the second – the competitive approach – benefits and compensation packages are offered in order to attract and retain employees; benefit adequacy involves an analysis of wages and the level of benefits offered by one’s peers. Again, the state of play in the credit union space in Washington, D.C. will be vastly different than that in Boise, Idaho, or Peoria, Illinois. An ideal plan will include both the objective and the competitive approaches.

What we call the “cross-tested plan” seems to be one of the most effective tools in plan design today. Such plans are being used more frequently as a way to reward longer tenured employees; reward and incent by job category; restore benefits lost due to a defined benefit (DB)/pension plan freeze or cutback; and/or provide additional benefits in lieu of a supplemental executive retirement plan (SERP) or non-qualified plan.

While DB pension plans tend to favor older employees, a cross-tested plan is a type of 401(k) or profit sharing plan that can be designed to allow a credit union to allocate contributions to specific groups of employees, who can be sorted by a number of categories including age, tenure, job category, management vs. non-management.

Furthermore, cross-tested plans focus on benefits at retirement rather than on regular contributions, enabling employers to provide higher contribution amounts (expressed as either a percentage of compensation or a dollar amount) to older employees, employees with more years of service, and/or employees who are performing the most important functions for the business. Because younger employees have a longer time horizon in which to grow their assets, cross-tested plans effectively permit employers to contribute more for their older employees.

In a cross-tested plan, each subset of employees receives a different level of contributions, and must be defined in the plan document. The actual contribution percentages can be decided at the end of each plan year and can change from year to year. What’s more, a company that already has a traditional 401(k) can overlay a cross-tested plan or establish a separate profit-sharing plan.

Keep in mind that every cross-tested plan has its own individually designed formula, allowing a given organization the ability to control its own destiny in terms of total contributions made on a year-by-year basis.

With an age-weighted plan, employer contributions are allocated among eligible employees based on both age and salary. Again, since a participant’s time horizon to retirement is factored into the allocation, older, more highly compensated employees tend to receive a larger share of the overall contributions:

Rich Rausser

There are, of course, other factors to think about when considering a cross-tested plan. But these are the broad strokes; I encourage you to investigate further on your own, or contact a reputable retirement planning provider to learn more.

Pentegra Retirement Services is the NAFCU Services Preferred Partner for Qualified Retirement Plans for Credit Union Employees. More educational resources can be found at www.nafcu.org/pentegra

How To Build A Third Party Cyber Risk Management Program

By: Jake Olcott, VP of Business Development at BitSight

Modern integrated business processes have dramatically expanded the attack surface of organizations in all industries. Institutions can no longer ignore the risk presented by vendors or other business partners, especially with regulatory bodies pushing for formal risk management of vendors and third parties. Assessing cyber risk adds to this challenge. It is one thing to make sure your organization is ready to deal with evolving threats- it is even more difficult to ensure your third parties are also prepared.

So, how can credit unions start evaluating the cyber risk associated with their vendors? More importantly, how can credit unions make this process efficient and cost-effective?

Using the right tools and techniques, those in charge of security and risk can drastically reduce third party cyber risk even if it’s not their primary responsibility. Below are four tips on how to save time and money in this process:

  1. Tier Your Third Parties

Some of your third parties have access to sensitive data that could compromise your employees and customer base. However, it’s likely that many others only have access to nonsensitive data. Identify your most important third parties and spend the most time assessing their security programs. Most organizations use a three or four-tier system.

  1. Adjust Your Contracts

Making sure that the contracts you’ve signed with your third party vendors reflects the level of security you expect is a critical step to managing and reducing 3rd party cyber risk.

  1. Use a Mix of Information to Assess Vendors

There are many ways organizations currently evaluate third party cyber risk. These typically include: standard security assessments and questionnaires, vulnerability scans, penetration tests, on-site visits, and data obtained through continuous monitoring. Taken together, these methods provide a good snapshot of an organization’s security posture.

  1. Continuously Monitor Your Critical Vendors

Just as your organization seeks to continuously monitor its own environment for security risks, it is critical to continuously monitor your critical third party vendors. Cyber is a dynamic environment, and security postures can change overnight. Monitoring your vendors and setting up alerts when security incidents arise is a more efficient way to assess and reduce security risk.

Join Jake for his webinar, “How To Build A Third Party Cyber Risk Management Program,” on August 24 from 2-3pm ET where he will offer tips, techniques, and tools you can leverage to make it an efficient and cost-effective process for your credit union. Click here to register today.

BitSight Technologies is the NAFCU Services Preferred Partner for Cybersecurity Ratings for Vendor Risk Management and Benchmarking. More educational resources and partner contact information are available at www.nafcu.org/bitsight

CFPB Shares Proposed TRID Amendments

By: Andy Dunn, Senior Attorney, Wolters Kluwer 

Recently the Consumer Financial Protection Bureau (CFPB) released its notice of proposed rulemaking for the Know Before You Owe rule, commonly referred to as TILA-RESPA Integrated Disclosures (TRID). In their press release, the CFPB emphasized four changes: 1) Tolerances for the total of payments; 2) Housing assistance lending; 3) Cooperatives; and 4) Privacy and sharing of information, along with minor corrections across several topic areas.

It’s great to have the CFPB working to formalize the nonbinding verbal guidance it has provided to industry stakeholders, including Wolters Kluwer. The proposed rule helps eliminate the risk, especially in a presidential election year, that nonbinding verbal guidance could lead to future compliance violations following a change in bureau leadership. Once the proposed rule changes are finalized and published, all industry participants will be working from the same playbook.

In working closely with our customers to help them comply with the Know Before You Owe rule, especially around areas where nonbinding verbal guidance from the CFPB was required, we’ve found the most recurring trouble spots came from financial calculations. From the CFPB’s proposed changes it appears many of these areas, including calculating cash to close table; principal reduction/curtailment; summary of transactions table; and escrow account disclosures will be addressed. This is great news for our customers and partners, as many of these calculations are complicated to produce under the current rule.

Wolters Kluwer kicked off its 2016 User Summits and workshops with their ComplianceOne mortgage customers in Bloomington, Minnesota on August 9. The events are being held in 18 U.S. cities, ending in San Antonio, Texas on December 8, 2016. The Summits will provide a great opportunity for ComplianceOne mortgage customers to discuss the proposed rule changes with peers and to share their feedback if they think additional guidance is needed beyond what has been proposed.

Wolters Kluwer is looking forward to responding to the CFPB’s proposal and sharing their customers’ feedback with the bureau. The comment period closes October 18, 2016.

Wolters Kluwer is the NAFCU Services Preferred Partner for Consumer and Member Business Lending & Deposit Services. Learn more at www.nafcu.org/wolterskluwer.