FRANK MALONEY
‘No more limitations’

Gov. Jane Swift could change the way cooperative banks, savings banks and credit unions invest in retirement services if she signs a bill recently passed in the Massachusetts House and Senate Joint Committee on Banks and Banking that allows banks and financial institutions the luxury of choosing their own retirement plans.

With the redraft of the 1946 bill aimed at regulating employee retirement associations, a broader potential market for the Cooperative Banks Employees Retirement Association, Savings Banks Employees Retirement Association and the Credit Union Employees Retirement Association would surface.

Additionally, increased competition between those players and the private industry, and increased choices in retirement plans for bank and credit union employees, could offer member clients more flexibility in their retirement options.

CBERA has lobbied Congress for decades to change the longstanding statute limiting the association’s ability to offer retirement services to clients outside the cooperative banking industry.

In July, the Massachusetts Legislature approved a bill that would broaden the group’s pool of customers and give CBERA and its two statutory sister organizations, SBERA and CUERA, the ability to provide retirement services to a broader range of potential customers in any of the three organizations.

“The idea [of the original legislation] was for each association to service their industry by allowing small employers to get professional retirement management and, for most of history, the way the organizations were run were very similar,” said Frank Maloney, president of CBERA.

The proposed legislation would allow CBERA, SBERA and CUERA to expand membership to savings banks, credit unions and trust companies, permitting different corporate structures within the current associations.

By expanding their client base to customers of various member institutions and providing retirement services, as well as retirement plans, all three associations would position themselves in a competitive market better addressing the varied retirement needs of different clients.

Currently, CBERA administers a 401(k) plan and a defined pension plan to members of the cooperative banking industry, while SBERA offers retirement plans solely to savings institutions.

The redraft of the legislation would make participation in CBERA, SBERA or CUERA retirement plans “voluntary” in that any state-charted savings bank, cooperative bank or credit union wishing to offer its employees a retirement plan would be able to offer retirement plans from CBERA, SBERA or CUERA, or from a private company offering retirement services.

Survival Tactics

“We are creating a seamless financial situation in that we are dramatically increasing the rights of employees of associations to choose where their retirement money is going to go,” said Rep. John F. Quinn, D-Dartmouth. “Under the existing law, where you work determines who you invest your retirement money with, and this opens the door for those employees to invest their money wherever they want.”

Because of increased bank consolidation, mergers and acquisitions, Maloney said CBERA sensed a threat to the long-term existence of the association. As the banking industry consolidates, the number of participants drops and, according to Maloney, it becomes more difficult to maintain the services offered to the remaining participants.

“We had to start thinking about what happens to us as mergers, acquisitions and potential failures happen,” said Maloney. “We got to the point were we did not feel that the Legislature would be receptive to changing the statute … as we got closer to the end of the 1990s, the board made a decision to try and change the legislation.”

The proposed regulation frees up all three organizations to service their membership and offers other associations the option of joining the CBERA, SBERA or CUERA membership to service their employee retirement plans.

“There would be no more limitations on where the banks get their services or who we service,” said Maloney.

Industry watchers are optimistic that Swift will sign the revamped legislation, which would become effective on Jan. 1, 2004. In the meantime, Maloney believes CBERA, SBERA and CUERA can create new divisions that would “allow us to look the way we need to look to be successful and service our clients.”

The effective date is contingent upon CBERA making a change to its internal policies to allow for “lump sum” distributions to departing plan participants. Once effective, the bill would allow the members of the three associations to move among all three to select retirement plans and services.

“Because the retirement association does come under the existing banking regulations, [CBERA] is limited in what we can offer and to whom we offer our retirement association services,” said James Callanan, vice president of the Board of Trustees of CBERA, in a legislative presentation last year. “With the shrinking cooperative bank numbers and competition we are encountering from other sources, we feel we need more flexibility in not only to whom we can offer retirement benefits, but also what types of services that can be offered.”

In the evolving age of 401(k) plans and increased retirement options, people are getting away from defined benefit plans and paying closer attention to what they invest in and what their options are, according to Quinn.

“This is a pro-retiree bill that has been kicking around for several years,” said Quinn. “It’s a balanced comprise that has come out which makes everyone happy … everyone comes out winning.”