Jump to content

457 plan investments by credit unions


Guest Sophia Chrusciel
 Share

Recommended Posts

Guest Sophia Chrusciel

Does anyone have experience with 457(f) ineligible plans for officers of credit unions in which assets are set aside in a supplemental retirement account on the books of and held by the credit union (i.e., no grantor trust or insurance or annuity vehicle) and invested in mutual funds? The main issue is whether such investment, which would normally not be permitted as a credit union investment, is permissable as an investment because it relates to the credit union functioning as an employer providing retirement plan benefits to employees. I am aware of a few NCUA letters on this, but am looking for practical experience, e.g., how common is it to fund the plans internally, are there likely to be audit/examiner inquiries, accounting treatment, etc.

Link to comment
Share on other sites

  • 3 weeks later...
Guest Tom Detmer

Many credit unions with executive level staff now consider it appropriate to fund a 457(f) plan with mutual funds or other variable type investments. As you point out, these investments are normally not permitted for credit unions, either under the NCUA rules for federally chartered credit unions or state rules for many state chartered credit unions. However, the NCUA and many states recognize that credit unions as employers must be permitted to informally fund executive benefits for appropriate level personnel with these types of investments and these regulators have issued letters acknowledging this fact. I should point out that each state has its own rules, so it is important to check the situation in a particular state for a state chartered credit union in that state before proceeding.

Many years ago these types of investments were not commonly used in credit unions but they are used more frequently now. The credit union still must do proper due diligence when selecting a vendor’s products and the credit union is still subject to fiduciary standards of prudence in allowing its executive benefits program to include a particular investment product. Finally the NCUA and many states will require that the program meet ordinary standards of “safety and soundness” for the type of investment product which is chosen. My assumption is that a credit union would want to do all of these things anyway but the regulators have stated that they are required.

As long as the preceding rules are met, most credit unions have not run into problems with federal and state regulators challenging the use of these programs. Usually, the accounting is fairly simple, consisting of entries showing the liability and the reserves, which have been set up by the credit union to pay the future liability. Occasionally a “rabbi trust” is used but most often the programs are paid out of the employer’s general assets which may or may not include mutual funds or other investments which have been purchased to accumulate the funds for paying the future liability. If a specific asset has been purchased for this purpose, it is set aside in a designated account showing the purpose for which it has been purchased.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...