Charitable donation account and benefits pre-funding basics

What do the NCUA amendments mean for your CU?

In December 2013, the National Credit Union Administration amended regulations §703 and §721 to allow federal credit unions to contribute to charitable donation accounts using previously impermissible investments. Since then, many states have allowed their state-chartered credit unions to do the same.

This means your CU can invest CDA funds in certain corporate bonds, securities, and business-owned life insurance that couldn’t be used for that purpose before.

NCUA’s CDA rule change gives CUs the flexibility to increase investment earnings while helping to limit risk to their overall financials. The rules also ensure that the majority of earnings are donated to charity. Key requirements for CDAs include: the aggregate annual investment in a credit union’s CDAs is limited to 5 percent of its net worth; assets in a CDA must be held in a separate custodial account or special-purpose trust; a CU must distribute a minimum of 51 percent of the CDA total returns to charities at least every five years; donations must be to tax-exempt 501(c)(3) charities; and accounting for CDAs must follow GAAP principles.

NCUA also requires that CU boards document their policies relating to CDAs to clearly show how they will adhere to regulations and to establish their investment strategies and risk tolerances.


continue reading »

More News