Why CUs Can't Afford To Miss Out On IRAs

It's no secret that the financial services industry has gone through quite a few changes in the last few years-and continues to change dramatically. These changes most likely have affected your credit union business, and in many cases, rearranged your priorities. While IRAs may not have always been a key driver for your credit union, research shows that ignoring them is not a good idea either. In fact, it may be detrimental to your business.

With approximately 78 million Baby Boomers leaving the workforce over the next 15 years, the number of Americans retiring with sizable, tax-deferred retirement assets will continue to increase. They need a secure destination for those assets. More and more, IRAs are the preferred vehicle, playing a key role in saving for retirement.

Studies show that approximately 40% of all U.S. households owned an IRA in 2012. In fact, IRAs now account for more than 25% of all retirement assets in the U.S. and rollovers from employer-sponsored retirement plans have fueled this growth.

In general, the average IRA balance is higher than ever. The latest data from the Employee Benefit Research Institute (EBRI) indicates that average balances originating from contributions versus rollovers differs greatly between Traditional and Roth IRAs. Individuals were more likely to roll over eligible assets from retirement plans to Traditional IRAs. On the other hand, individuals were more likely to make regular contributions to Roth IRAs rather than fund them with rollovers. Moreover, statistics show that in 2011, only 6% of Traditional IRA owners made contributions, while 26% of Roth IRA owners made contributions.


Steady Growth

While this overall growth in IRA balances has been slower within the credit union marketplace, the expansion is apparent. The growth rate for IRAs at U.S. credit unions was 1.8% in 2012 compared to 1.6% in 2011. In addition, the number of credit unions that offer IRAs has steadily increased since 2009 with 66% of all credit unions offering IRAs.

With the industry slated to continue its growth trajectory, credit unions must determine how to manage the upward expansion. You may want to consider outsourcing your IRA program. An increasing number of credit unions are hiring out the administration of their IRAs to firms that provide turnkey IRA tax reporting and administration to better meet member expectations, minimize risk, and reduce costs.

A well-maintained IRA program also means upholding IRA compliance standards. Following all of the rules and keeping up with changing regulations can be a full-time job in and of itself. Add to that staff turnover within your credit union and you face a certain amount of risk. The potential for errors becomes an ongoing concern; however, when you rely on trusted experts for your IRA administration, your risk of compliance errors is significantly reduced, as the expertise of the outsourcer remains intact.


Significant Cost Reduction

Moreover, by outsourcing, you may notice a significant reduction in costs associated with running an IRA program. It may not be viable to have one IRA specialist whose sole responsibility is to oversee the program, as credit union employees tend to wear multiple hats.

Whatever your credit union's unique business environment, member base, and priorities, the need for a smart, reliable alternative to manage your IRA program is vital. The level of outsourcing may vary greatly from one credit union to the next, depending on which issues present the greatest challenge. The need may be most evident in the day-to-day maintenance of your existing IRAs or emerge through the loss of a key person that understood some of the more complex nuances of IRAs. Tax reporting, periodic payments, required minimum distributions, and technical support are just a few common areas that can be problematic.

However your credit union chooses to handle IRAs, be aware that members still find value in them and will choose their credit union based on it being a trusted resource for all their financial needs. Providing the best possible IRA program as part of your full-service operation will certainly benefit your credit union-and your members.

Steve Christenson is Executive Vice President, Retirement Products & Solutions at Ascensus, an independent retirement plan services provider. For info: www.ascensus.com.