To: All Affiliated Credit Union CEOs
From: Matt Beard - Regulatory Specialist
Date: March 28, 2006
RE: Share Insurance Rules Changes - Interim Final Rule
Note: This new Comment Call format is designed to highlight the key issues associated with the proposed changes, with the option of going to the full description from CUNA. If the topic discussed is of interest, you may click on the link that will take you to the full explanation and questions associated with the changes. If you receive this information via fax or mail, and you do not have Internet access, please contact Angie Hall at 800-262-6285 to receive CUNA’s full proposal.
The NCUA Board adopted an interim final rule to amend the share insurance rules, which will incorporate recent amendments to the Federal Credit Union Act (FCUA). These amendments were included in the deposit insurance reform law that Congress passed last year. The rule will be effective as of April 1, 2006, although there will be a 60-day comment period.
The interim final rule will:
- Increase the share insurance limit for certain retirement accounts from $100,000 to $250,000. These include individual retirement accounts (IRAs) and Keogh accounts.
- Define the “standard maximum share insurance amount (SMSIA)” as $100,000, other than for the retirement accounts described above. The insurance limit has been $100,000 for all types of accounts since 1980. Beginning in 2010, and in each subsequent five-year period thereafter, NCUA and the Federal Deposit Insurance Corporation (FDIC) will jointly consider whether the SMSIA and the equivalent amount for bank deposits should be adjusted for inflation. The purpose of using the term SMSIA, instead of a dollar amount, is to avoid having to change the dollar limit in the rule each time there is an inflation-adjusted change.
- Provide pass-through coverage to each participant of an employee benefit plan, but will limit acceptance of shares in these plans to insured credit unions that are well capitalized or adequately capitalized. NCUA’s interpretation of the new deposit insurance reform law is that it has authority to allow full insurance coverage for each participant in an employer benefit plan, even if a participant is not a member of the credit union in which the account is maintained. NCUA is seeking specific comments on this issue.
- Incorporate an NCUA Office of General Counsel legal opinion regarding “529 Plans,” such as prepaid tuition programs that educational institutions create and tuition savings programs that states sponsor. Under NCUA’s opinion and the proposal, participants would have to be members of the credit union. These accounts will be insured as single ownership accounts under the share insurance rules that cover accounts held by the state as agents or nominees. Such accounts will be aggregated with all other individual accounts that a participant has at the credit union and insured up to the SMSIA. NCUA cautions that careful titling is essential to ensure individual account coverage.
- Provide for insurance coverage for shares denominated in foreign currency and for conversion of foreign currency to U.S. dollars before an insurance payment is made as a result of a credit union’s liquidation.
Comments are due by May 22, 2006. Please submit your comments to MCUL by May 11, 2006.
- If you would like to access CUNA’s analysis of the topic, (you will need your CUNA user ID and password) go to: http://www.cuna.org/reg_advocacy/reg_call/rcc_032306.html.
- If you would like a copy of the interim final rule, you may access it on the Internet at: http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/
- Do you agree that pass-through insurance coverage for employee benefit plans should cover nonmembers to the extent that members are covered? Should there be requirements before such coverage should apply, such as requiring that the employer or trustee be a member of the credit union or requiring that a certain percentage of participants be members?
- Under these rules, only certain retirement plans will receive additional insurance coverage up to $250,000 per account, such as IRAs and Keoghs, and different IRAs created by the same member will be combined and insured in the aggregate up to $250,000, while Keoghs will be separately insured. Are you concerned about how to explain these differences to your members, and do you have suggestions on how to alleviate this possible confusion?
- Are you aware of any States that allow state-chartered credit unions to offer additional retirement accounts that are not permitted for federal credit unions? Are you concerned about the additional confusion that may result since IRAs and Keoghs will be insured up to $250,000 but these other accounts may not be?
- Do you have any other comments?
Potential Impact to Credit Unions. ( Note: Below is a list of issues the MCUL identified as potentially impacting credit union policies, procedures, or operations. Keep in mind that as each credit union is unique, this list may not be exhaustive.)
If the interim final rule remains unchanged:
- Credit unions will have to notify members of the additional insurance coverage on certain retirement accounts, and change notification and signage that reflects insurance amounts for the referenced retirement accounts.
- Credit unions will have to educate staff regarding which accounts have increased insurance limits and which ones do not, and may have to obtain new share insurance brochures.
If you have any further questions, or to submit a response, please contact:
Michigan Credit Union League
112 East Allegan St., Suite 800
Lansing , MI 48933
Fax: (517) 482-3762
We Appreciate Your Response.
InfoSight - For further information on Share Insurance, go to www.mcul.org, click on Regulatory Compliance and InfoSight, enter your user name and password, click on the InfoSight link at the top of the page, click on Member Accounts, and click on the Share Insurance. Or you may click on the following link: Share Insurance.