The case for credit unions providing their directors long-term care insurance
Guest post by Tom Telford, Executive Vice President, Burns-Fazzi, Brock.
The term âvolunteerâ exemplifies commitment, impact and shaping a desired outcome through the offering of oneâs own ability. For all board members committed to the credit union movement, this means thousands of hours of work to help shape their organizations. With the new regulations from NCUA regarding fiduciary duties, the responsibilities and expectations of credit union directors have multiplied.
The position of board member in for-profit sectors typically equates to monetary rewards for service. In the credit union industry, most forms of âcompensationâ are not allowed under NCUA guidelines.
NCUA regulation section 701.33 prohibits compensation to more than one board officer but allows a federal credit union to provide all directors with reasonable health, accident and other related types of personal insurance protection subject to numerous restrictions.
One such restriction is the requirement that the insurance protect against an area of risk to which the director is exposed through the board service. Even with this restrictive statute, the NCUA recently clarified its position in Opinion Letter 10-0913. It states that federal credit unions may provide voting members of their boards with reasonable long-term care insurance, even if the insurance protects against some areas of risk outside of board service. Indirect support for treating long-term care as similar to health and accident insurance is found in the tax code. Section 7702B(a)(3) of the Internal Revenue Code provides that under a âqualified contract,â long-term care coverage provided âshall be treated as an accident and health plan.â
Why offer long-term care insurance?
Long-term care is an opportunity for a credit union to provide something of value to their board members for volunteering their time, talent and dedication to the success of the organization.
The Department of Health and Human Services has stated that at least 70 percent of people over age 65 will require some long-term care services at some point in their lives. Contrary to what many people believe, Medicare and private health insurance programs do not pay for the majority of long-term care services that most people need. Most long-term care is non-skilled personal care assistance such as help performing the activities of daily living, including: eating, bathing, dressing, toileting, transferring and maintaining continence. The purpose is to help maximize your independence and function at a time when you are not able to be fully independent. Planning is essential for you to be able to get the care you will need.
How would an LTC plan impact a credit union financially?
Simply stated, the credit union pays the long-term care premium directly to the carrier while the director is serving on the board. When a director leaves the board, the credit union stops making premium payments and the director takes the long-term care policy with him.
Long-term care has many features and comes in a variety of forms. Similar to medical insurance, long-term care policies have various levels of coverage. The coverage is typically priced by the insurance carrier in the form of a âdaily benefit.â The daily benefit is expressed as the dollar amount an insured would receive to cover their daily cost of care. As a credit union actively researches and completes their due diligence on the different types of plans and features, it will see that expense differs based upon the duration of coverage, the daily benefit amount and medical underwriting consideration from the carrier.
Is long-term care right for your credit union?
Credit unions need to be prudent in their understanding of the financial impact of the plan for the organization and establishing eligibility requirements. Additionally, as with other benefits received in an organization, long-term care insurance for board members may impact the culture of the credit union board.
As with all other benefit decisions, there should be adequate discussion and due diligence regarding the plan as well as the risks and rewards for the credit union of providing board long-term care insurance.
For more credit union resources from Burns-Fazzi, Brock, including webinars, whitepapers, podcasts and contact information, visit www.nafcu.org/bfb.
Original article appeared in The Federal Credit Union magazine May/June 2011 issue.