DIFS Issues Deferred Compensation Bulletin

Last week, the Department of Insurance and Financial Services issued bulletin 2013-18 CU for state-chartered credit unions to clarify permissible employee deferred compensation arrangements and investment limitations under the Michigan Credit Union Act. MCUL & Affiliates worked closely with DIFS staff over the last several months prior to issuance of the bulletin.

Currently, section 401(2)(ss) of the MCUA permits domestic credit unions to “purchase insurance policies and other investment products to fund deferred compensation arrangements for its employees,” as long as the arrangement does not present a risk to the safety and soundness of the credit union. In the past, these types of arrangements were typically structured as Bank Owned Life Insurance (BOLI) policies. 

However, DIFS has found that some credit unions are also utilizing different deferred compensation arrangements, not owned by the credit union, such as Collateral Assignment Split Dollar (CASD) plans. The CASD arrangements typically utilize a series of loans to an executive to fund the CASD over a period of time, with the proceeds from the whole life insurance policy serving as collateral for the loan. This DIFS bulletin outlines minimum initial due diligence requirements and ongoing monitoring for boards of directors to perform and document in order to ensure that a deferred compensation arrangement does not raise safety and soundness concerns. It also focuses on the investment relationship (investment funding and obligation related to the deferred compensation arrangement) and accounting and reporting requirements.

After working with DIFS over the last several months on the issue, MCUL & Affiliates hosted two conference calls for credit union leaders to discuss the bulletin, its implications and next steps for compliance. The league conference calls featured presentations by John Kolhoff, DIFS Office of Credit Unions deputy director, and expert commentary and analysis by Holzman Corkery, Doeren Mayhew and CUNA Mutual. In addition to walking through the key parts of the bulletin, participating credit unions heard about due diligence and ongoing monitoring expectations, exam issues and important legal, accounting and call report implications associated with the new guidance. 

Credit unions are advised to review their existing deferred-compensation arrangements for compliance with bulletin 2013-18-CU, and where necessary, work with their legal, accounting and insurance professionals to ensure that their plans are in compliance with this guidance.

Any credit unions who have additional questions regarding deferred compensation plans and the DIFS bulletin can reach out to Ken Ross, MCUL executive vice president and COO, at Ken.Ross@mcul.org.

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