Author: David Rosenblum
Defined benefit (DB) plan sponsors across the credit union industry continue to navigate a rapidly shifting economic environment. To protect pension surplus, preserve annual pension income and fulfill long‑term fiduciary obligations, credit unions should be asking themselves several critical strategic questions:
- What happens to pension surplus and income levels if long-term interest rates fall again?
- How vulnerable is the pension surplus and income if equity markets decline materially?
- Should the credit union consider using a portion of pension surplus to effectively offset employer 401(k) contributions — and under what conditions would this be prudent?
A continuing commitment to defined benefit plans
Gallagher is proud to support more than 600 active credit union clients through our executive benefits, retirement plan and employee benefits consulting services. A meaningful share of these institutions continues to sponsor defined benefit plans, highlighting the ongoing importance of thoughtful pension oversight and risk management.
Findings from Gallagher's 2025 U.S. Benefits Strategy & Benchmarking Survey reveal:
54% of credit unions with DB plans expect to keep their plans active.
38% anticipate maintaining their frozen status for at least the next three years.
This data underscores the long-term commitment many credit unions maintain to their DB obligations and the need for proactive strategies to help safeguard financial outcomes for members, employees, and plan stakeholders.
Key themes identified in credit union defined benefit plans
A review of publicly available information on credit union defined benefit plans reveals several common themes that signal areas where action — and opportunity — exist:
- Many credit union DB plans are well funded. Most plans are well funded and maintain material surplus, generating significant annual pension income. This income creates valuable strategic flexibility — but only if surplus levels are protected.
- Interest rate and equity market declines threaten surplus. A drop in long-term interest rates and/or a decline in equity markets could substantially reduce surplus and the pension income those surpluses generate. Without a clear risk mitigation strategy, income and surplus levels could take a material hit.
- Surplus and income can be protected without sacrificing returns. The risks posed by rate and equity declines can be largely hedged through well-structured investment strategies — including interest rate hedging and equity protection approaches. These techniques help:
- Minimize downside exposure.
- Preserve surplus and annual income.
- Still allow participation in market upturns.
- Pension surplus can effectively be used to offset a portion of 401(k) cash contributions. Either through a "spinoff/termination" or a market-based cash balance approach, existing pension surplus can be used to "pay" for a portion of current 401(k) contributions. These strategies may appeal to some credit unions that would benefit from significant cash savings.
- Many plans pay higher than necessary investment fees. Many credit union pension and retirement portfolios maintain investment expense ratios at or above 50 basis points annually.* In many cases, portfolios can be efficiently structured for less than 50 bps while maintaining — or even enhancing — their risk adjusted return profiles. This creates a compelling opportunity to:
- Improve net returns.
- Reduce avoidable expenses.
- Strengthen overall plan governance.
As a valued partner, Gallagher has supported credit unions across the country in strengthening investment governance, identifying cost saving opportunities and implementing strategies that protect both surplus levels and member value. Connect with your consultant today to discuss ways to help mitigate governance risk and improve outcomes and sustainability.
