CUES Podcast

CUES 84: Investing for Success With Benefits Pre-Funding, Charitable Donation Accounts and 457(f) Plans—An Interview With Bruce Bauer, Matthew Peron and Russell Martin

December 30, 2019 CUES
CUES Podcast
CUES 84: Investing for Success With Benefits Pre-Funding, Charitable Donation Accounts and 457(f) Plans—An Interview With Bruce Bauer, Matthew Peron and Russell Martin
Chapters
CUES Podcast
CUES 84: Investing for Success With Benefits Pre-Funding, Charitable Donation Accounts and 457(f) Plans—An Interview With Bruce Bauer, Matthew Peron and Russell Martin
Dec 30, 2019
CUES

The National Credit Union Administration allows credit unions to make certain “otherwise impermissible,” potentially higher-yielding investments that carry additional risk when credit unions set up certain kinds of programs, including the following:

  • total benefits pre-funding—which helps credit unions offset the rising cost of staff benefits;
  • charitable donation accounts—which require that 51% of the earnings on an investment of up to 5% of the CU’s net worth go to 501(c)3 charities; 
  • and 457(f) plans—which are retirement programs than can help CUs recruit, incent and retain key employees. 

“When we build those plans, open those … accounts, we need funding vehicles,” says Bruce Bauer, executive benefits specialist with CUESolutions platinum provider CUNA Mutual Group, Madison, Wisconsin, in the early part of this show. “One of the funding vehicles we use is City National Rochdale and their managed portfolios.” The company has become “a very strong partner for us. I believe we have over $1.2 billion with them right now.”

Matthew Peron, chief investment officer, City National Rochdale, New York, says his firm is a boutique investment manager known for handling specialized and complex cases for high net worth investors and institutions. The firm manages assets of more than $40 billion. 

“Our investment posture is a little different, Peron says in the show. “We’re very attuned to crafting investment allocations, solutions if you will, for the needs of our clients who can be very different. … Our solutions that we provide … are able to tailor to the specific needs of clients.”

When City National Rochdale works with a credit union, it starts by understanding the plan that CUNA Mutual has put in place and also partners with the credit union’s executive team and sometimes its board to understand how they’re running the business and what might be unique to that credit union’s situation.

“All of our portfolios are customized,” explains Russell Martin, portfolio manager with City National Rochdale. “We do not use model portfolios. Each asset allocation or the individual instruments that we use in those portfolios may vary across all of the credit unions that we manage money for.” 

But generally speaking, these plans can be grouped into two broad categories, Martin adds: 

1. Total benefit prefunding accounts and the charitable donation accounts tend to be a little more conservative in their investment strategies, with fewer equity investments (stocks) and more fixed-income investments (bonds). The stock component tends to include more conservative, less volatile, high dividend stocks that get their return through cash flow and don’t rely as heavily on price appreciation as do many of the growth stocks in the market.

2. Investments for 457 plans tend to be more balanced between equity and fixed income. These tend to have a blend of the high dividend stocks and the growth stocks.

“The overlay on all of this is understanding the financial statements and the accounting methods that each credit union uses,” he notes. 

The show also gets into: 

  • How credit unions are working with the new accounting rules regarding how their investment portfolios impact their income statements and balance sheets
  • The state of the current economy in the United States
  • What credit unions might be able to do to expand investment options in this low interest-rate environment
Show Notes

The National Credit Union Administration allows credit unions to make certain “otherwise impermissible,” potentially higher-yielding investments that carry additional risk when credit unions set up certain kinds of programs, including the following:

  • total benefits pre-funding—which helps credit unions offset the rising cost of staff benefits;
  • charitable donation accounts—which require that 51% of the earnings on an investment of up to 5% of the CU’s net worth go to 501(c)3 charities; 
  • and 457(f) plans—which are retirement programs than can help CUs recruit, incent and retain key employees. 

“When we build those plans, open those … accounts, we need funding vehicles,” says Bruce Bauer, executive benefits specialist with CUESolutions platinum provider CUNA Mutual Group, Madison, Wisconsin, in the early part of this show. “One of the funding vehicles we use is City National Rochdale and their managed portfolios.” The company has become “a very strong partner for us. I believe we have over $1.2 billion with them right now.”

Matthew Peron, chief investment officer, City National Rochdale, New York, says his firm is a boutique investment manager known for handling specialized and complex cases for high net worth investors and institutions. The firm manages assets of more than $40 billion. 

“Our investment posture is a little different, Peron says in the show. “We’re very attuned to crafting investment allocations, solutions if you will, for the needs of our clients who can be very different. … Our solutions that we provide … are able to tailor to the specific needs of clients.”

When City National Rochdale works with a credit union, it starts by understanding the plan that CUNA Mutual has put in place and also partners with the credit union’s executive team and sometimes its board to understand how they’re running the business and what might be unique to that credit union’s situation.

“All of our portfolios are customized,” explains Russell Martin, portfolio manager with City National Rochdale. “We do not use model portfolios. Each asset allocation or the individual instruments that we use in those portfolios may vary across all of the credit unions that we manage money for.” 

But generally speaking, these plans can be grouped into two broad categories, Martin adds: 

1. Total benefit prefunding accounts and the charitable donation accounts tend to be a little more conservative in their investment strategies, with fewer equity investments (stocks) and more fixed-income investments (bonds). The stock component tends to include more conservative, less volatile, high dividend stocks that get their return through cash flow and don’t rely as heavily on price appreciation as do many of the growth stocks in the market.

2. Investments for 457 plans tend to be more balanced between equity and fixed income. These tend to have a blend of the high dividend stocks and the growth stocks.

“The overlay on all of this is understanding the financial statements and the accounting methods that each credit union uses,” he notes. 

The show also gets into: 

  • How credit unions are working with the new accounting rules regarding how their investment portfolios impact their income statements and balance sheets
  • The state of the current economy in the United States
  • What credit unions might be able to do to expand investment options in this low interest-rate environment