Fourth Quarter 2008

Boost Credit Card Penetration
By Bill Lehman, CSCU Portfolio Consultant

Credit card portfolio penetration is an area where most credit unions have an excellent opportunity for growth.  The average credit union’s penetration rate is just 14%, which can be a result of either a non-competitive credit card program or simply just not enough marketing.  On average, 100 new, active cardholders will earn your credit union, an additional $19,080 in Annual Revenue (See Table). 

So, what can credit unions do to help increase their penetration?
If you want to be successful in acquiring new credit card accounts in today’s market, you need to offer a competitive product.  Consider what the competition is offering.  I guarantee the competition is offering platinum, introductory and/or balance transfer promotional rates, competitive rates, and enticing reward programs.  The most common reasons members pick an alternative credit card is for those exact reasons.  You should regularly review the solicitations that you personally receive and honestly ask yourself if your program is competitive.   
If you are convinced your program is competitive, then it’s time to actively seek new cardholders.  But, you must realize that everyone responds differently to different marketing channels.  Some will open a direct mail solicitation, and some will recognize an advertisement on your website.  The key is to have a well-rounded acquisition campaign that maximizes all marketing channels.

Best Practices
• In-branch Marketing – Utilize cost effective in-branch marketing tools such as teller pins, tent cards, posters, banners, and take-ones.
• Employee Incentive – Encourage staff to cross-sell your credit card by offering an incentive.  Incent for acquisitions and balance transfers. 
• Direct Mail/Pre-approvals – Dare to be different!  Make the solicitation stand out.  Make the offer clear, concise and simple to accept. 
• Outside Advertising – Credit unions are having more and more success with radio, billboards, and TV. 
• Intro/Promotional Rates – Incentive pricing helps acquire NEW and ACTIVE cardholders.  Rates 3-5% lower than your standard rate work best.
• Visa and MasterCard Promos – CSCU often provides FREE marketing kits to help you leverage brand recognition.
• Misc – Take advantage of all channels, including: your website, newsletter, ATM signage, auto-attendant messaging, and statement inserts.

Member credit unions that put out a competitive product and all encompassing acquisition marketing strategy have great success! I would be happy to discuss any of these strategies in further detail, just email me blehman@cscu.net or call 888-930-CSCU.

Include deferred benefit plans in executive succession plans
Key features of 457(b) and 457(f) plans

By Gary Peterson, Executive Benefits Specialist, CUNA Mutual Group

Boards of directors representing the smallest to the largest credit unions have a fiduciary responsibility to have a solid executive succession plan.  This helps ensure continuity of management and reduces the time and cost of replacing a leader.  To compete for top talent—and to hold onto its existing talent—credit unions should consider a deferred compensation plan as part of its succession plan.

Highly compensated executives can easily have retirement benefit shortfalls.  One limitation is ERISA’s cap on qualified defined benefit and defined contribution plans. These executives also face Social Security maximums, and limitations on disability insurance and corporate-purchased life insurance.

To compensate for these shortfalls, boards should consider a non-qualified deferred compensation plan.  (“Non-qualified” refers to a plan that can be offered to individuals without being made available to a complete employee class.)  These plans are flexible enough to provide a competitive benefits package.

In most cases, non-qualified deferred compensation plans may be offered only to a select group of management or highly compensated employees.

The two non-qualified deferred compensation plans available to non-profit organizations such as credit unions are the 457(b) and 457(f).  Both give the credit union the ability to provide additional benefits to specific executives who are eligible.

457(b) plans
In general, a 457(b) plan allows executives to defer compensation much like a 401(k) plan.  As with a 401(k) plan, there is a limit on how much can be deferred into a 457(b) plan ($15,500 in 2008).

The 457(b) is an ideal option for executives who have either maximized their 401(k) deferred contribution (also $15,500  for 2008) or are limited to the amount they can defer into the 401(k) because of plan testing for highly compensated employees.

In 2008, an executive who maximizes contributions to a 401(k) and a 457(b) could defer  taxes on a total of $31,000 (and possibly more if they qualify for “catch-up” provisions).

A 401(k) and a 457(b) allow the employer to make matching contributions, but not in the same way.  In a 401(k) plan, the $15,500 limit only applies to the employee’s contribution, whereas the total employee and employer contribution in a 457(b) plan is capped at $15,500.

Taxation of a 457(b) plan occurs when the executive takes distribution of the money.  In most cases this occurs at or after the executive’s separation of service (retirement, death, or disability) and before age 70½ (Required Minimum Distribution).

To include the tax deferral advantage, the IRS requires that all 457(b) and 457(f) plans remain as general assets of the employer, subject to the claims of creditors until paid.

An executive leaving employment is eligible to take distribution of 457(b) money.  But if the credit union suffers a bankruptcy before the executive leaves, the 457(b) plan assets can be available to creditors.  In most cases, a credit union’s assets in bankruptcy are taken over by another credit union and the plan obligation continues.

457(f) plans
A 457(f) plan doesn’t cap the amount a credit union can contribute.  However, regulations require that a 457(f) plan include a “substantial risk of forfeiture.”  For example, if an executive leaves before a stated date or event, the executive forfeits the benefit.  Thus, 457(f) plans are sometimes called “golden handcuffs.”

Another key difference between a 457(b) and a 457(f) is when taxes must be paid.

The full amount of 457(f) benefits are taxed at the time that the agreed “risk of forfeiture” date or event occurs.  For example, if the agreed risk of forfeiture was a minimum of 10 years of employment as CEO, after the CEO has served the 10 years, the benefit is no longer at risk of forfeiture.  So, taxes must be paid at that time, even if the CEO doesn’t take payment of the benefit until later.

It’s important to remember that the employee and the employer are responsible for paying their respective portions of the deferred taxes at that time.  These taxes include federal income tax, FICA, FUTA, and any applicable state or local income tax.

Because the 457(f) plan is an individually negotiated arrangement, an attorney is typically involved in drafting or reviewing it.

Tailor plans to individual needs
Depending on the specific objectives of the credit union and the executive, a 457(b) plan, a 457(f) plan, or a combination can provide the assurance an executive needs.

These plans can be tailored for recruiting new executives, rewarding outstanding service from an existing executive, or creating incentives for executives whom your credit union is grooming for top posts.

For more information, contact your CUNA Mutual executive benefits specialist at 800-356-2644, 1035 or visit our Web page at www.cunamutual.com.

SimpliCD – Convenience, Peace of Mind, Reliability
By Jaime Agostino, Corporate Account Manager
Mid-Atlantic Corporate Federal Credit Union

Are you searching for an additional investment vehicle that is convenient, gives you peace of mind and is reliable?  If so, it’s time to consider utilizing the SimpliCD program with Mid-Atlantic Corporate.

Convenience
SimpliCD is a convenient way to invest in federally insured jumbo certificates of deposit with minimum effort. The program eliminates the hassle and time involved in investigating potential issuers and purchasing the CDs on your own.  Each day, SimpliCD searches its nationwide network of issuers for the best rates on federally insured jumbo CDs. SimpliCD tracks, monitors and collects all of your earnings.  You'll receive a single consolidated monthly interest payment for all of your SimpliCD investments.

Peace of Mind
Placements are made by purchasing multiple CDs in $99,000 or $100,000 increments at separately insured issuers.  A detailed tracking system assures that no more than $100,000 of your principal is placed in any single financial institution within the SimpliCD program.  The CDs are purchased in a custodial capacity on your behalf, passing all federal insurance benefits through to you.  When you contact Mid-Atlantic Corporate to make purchases, a Corporate Account Manager obtains a “Rate Run” on your credit union.  The “Rate Run” only displays financial institutions that your credit union currently does not own through the SimpliCD program.  This eliminates both the potential of purchasing the same financial institution more than once within the program and exceeding the $100,000 federal insurance limit; thus giving your credit union peace of mind.

Reliability
With the current economic conditions, many may be worried about the possibility of financial institutions closing.  As stated previously, within the SimpliCD program your credit union is unable to purchase more than $100,000 with a single financial institution, so that you do not exceed the federal insurance limit.  But what happens if you own an investment in a closed financial institution through the SimpliCD program?

On Friday, July 11, 2008, IndyMac Bank F.S.D. in Pasadena, CA was closed and the FDIC was named conservator.  On Saturday, July 12, 2008, Primary Financial Co LLC, the custodian for the SimpliCD program, sent all required documentation detailing all the credit unions owning IndyMac Bank through SimpliCD to the FDIC for receipt on Monday morning, July 14, 2008.  It was important to send this information as soon as possible, because the FDIC normally reviews information on a first-come, first-served basis.  Due to the immediate response and reliability of Primary Financial, the investment principal of Mid-Atlantic Corporate’s members was returned on Friday, July 25, 2008.

Melinda Lee, CEO of Jessop Community FCU, was one of several Mid-Atlantic Corporate members who owned IndyMac Bank through the SimpliCD program.  “My thanks to Primary Financial for the prompt attention to this matter, so we investors received our insured deposits as quickly as we did.  Just another reason to deal with Mid-Atlantic and its programs,” stated Lee.

Convenience.  Peace of Mind.  Reliability.  If you want to sign up for the SimpliCD program or need additional information, please contact your Corporate Account Manager today by calling (800) 622-7494.

Allpoint Network Adds 7-Eleven® ATMs

BETHESDA, MD, September 3, 2008 – Allpoint Network, America’s largest surcharge-free ATM network, has expanded its surcharge-free ATM access by adding ATM locations at more than 5,500 7-Eleven® stores to its portfolio.  7-Eleven joins other leading brands such as Target, CVS, Walgreens, and Costco in featuring Allpoint Network surcharge-free access.

"The addition of 7-Eleven demonstrates Allpoint’s commitment to enhancing value for the member institution and convenience for the cardholder," said Ben Psillas, Founder and President of Allpoint.  "The integration of ATMs at these outlets brings another premium set of locations that we own through our parent company, Cardtronics."

Allpoint, a division of Cardtronics (NASDAQ:CATM), is America’s Largest Surcharge-Free ATM Network with 35,000 ATMs in leading national and regional merchant locations across the country.  Allpoint provides greater access, convenience and savings to customers of financial institutions with limited ATM presence while providing the institutions with the tools to compete more effectively for customers.  For more information or to find the nearest Allpoint surcharge-free ATM, visit the company’s web site at www.AllpointNetwork.com.

To learn more, please contact us: 800.809.0308 or Info@AllpointNetwork.com

In order to revitalize waning loan growth and membership growth that is barely staying ahead of U.S. population growth, credit unions need to develop strategies to attract new members – starting with the youngest savers up to those entering their prime borrowing years.  As a collective demographic, born between 1977 and 2002, Generation Y represents nearly 90 million consumers and is larger than any other generation to date.

According to the 2008 – 2009 Environmental Scan, published by Credit Union National Association, Gen Y’s collective income will surpass that of the baby boomers by more than $500 billion within 10 years. Despite the potential of this lucrative and burgeoning population, this demographic is largely misunderstood by marketers.

Several key characteristics of Gen Y-ers:

• Eager to learn and want someone to teach them about saving and investing.
• Often saddled with heavy credit card and college loan debt, but already have good savings ethics.
• Averse to irrelevant marketing due to their skills in finding relevant information on their own via the Internet.
• Altruistic and eager to save the world.  They want to make an important, immediate impact.

Traditional member-acquisition strategies don’t always work well with Gen Y.  These younger consumers value multi-channel access, time savings, convenience and financial-management capabilities in their primary financial institution (PFI) according to Javelin Strategy and Research.
Gen Y is:

• Less likely than older consumers to select a financial institution based on rates, fees, or online services.
• More likely to choose a PFI based on ATM access.
• Eager to use some online capabilities, such as account-opening or financial-management tools.

When designing products and services for Gen Y members don’t underestimate their interest in more traditional delivery channels.  According to Javelin Research, Gen Y rated access to ATMs and physical branches as more important than access to online transactions services.  In addition, explain to your Gen Y members how your services will meet their needs; answer the “what’s in it for me” question when discussing your products and services.

In order to meet the expectations of Gen Y, look to CUNA Strategic Services’ Budget Planner 2009 offering of products and services that:

• Save time by offering convenient envelope-free ATM deposits through Diebold’s Deposit Automation package;
• Offer the convenience of viewing cancelled checks online with Canon’s full-line of check scanners;
• Help catch the bad guys (remember Gen Y wants to save the world) with 3SI cash protections systems;
• Provide continuity of your branch services through Agility Recovery Solutions turnkey disaster recovery units.
• Encourage Gen Y’s savings ethic by offering Talaris’ QuickChange change counter in your lobbies.

Not only will these products and services assist you in meeting Gen Y’s expectations but they’ll help you maximize your credit union’s valuable budget dollars.  These offers go beyond the already superior value you receive through CUNA Strategic Services’ providers – Diebold, Canon, Agility, 3SI and Talaris (formally De La Rue).  These special, limited time offers are available from October 1, 2008, to March 31, 2009.

For more information on these special savings or to download a brochure, visit strategicservices.cuna.org.  To have a brochure mailed to you, contact CUNA member service at (800) 356-8010, press 3, and ask for stock number 28480.

Thank you for reading Service Issues!
Jane Bailey, Editor
Delaware Credit Union League
jane@dcul.org