Increase giving—and reward deserving directors & employees—with a Charitable Donation Account
Friday, December 15, 2017
Posted by: CUNA Mutual Group
Credit unions are seeing the value in improving their charitable giving strategy through a charitable donation account (CDA) program. In the past year alone, CDA investments have increased by 39%.1
A CDA’s primary objective is to help credit unions donate to their favorite charities and foundations, which may include the National Credit Union Foundation (NCUF), a League’s foundation, or a credit union’s own foundation, while simultaneously increasing return on assets (ROA).
By using professionally managed investment portfolios, your credit union’s CDA has the opportunity to invest in equity and bond portfolios that have not been available through traditional credit union investments. In turn, you may have more to donate. It’s a great way to recognize a board member or employee, by making donations in their name.
In the NCUA board minutes2 from the meeting at which the CDA rule was unanimously approved, then NCUA Chairman Debbie Matz mentions that the new ruling sets safeguards to ensure that CDAs are used for their intended purposes.
“This innovative rule strikes the right balance to provide flexibility, but ensures that the majority of earnings received from the account will benefit charities and communities, rather than propping up a credit union’s income statement,” Matz says in the minutes.
One of the safeguards Matz is referring to is the requirement that at least 51% of the investment returns are paid to qualified 501(c)(3) charities at least every five years. If your credit union fulfills this and other requirements, you can retain up to 49% of the earnings to allocate to your bottom line.
Other stipulations for CDA assets include that they must be held in a separate custodial account or special-purpose entity, such as a trust. Also, the total aggregate investment is limited to 5% of a credit union’s net worth (for federal credit unions; certain states may have different rules).
A Means of Recognition and Reward
As it’s often a struggle to find a suitable way to reward volunteer board members, public recognition in the form of charitable donations is a fitting tribute.
So, consider using CDA earnings to not only increase donations, but make those donations in the name of a board member or employee—perhaps someone who’s been a key figure at the credit union and has been involved in a specific charity or community program for many years.
Whatever giving strategy you decide upon for your CDA, document it thoroughly. You should have a specific board resolution in place regarding CDAs.
You will probably also need to update your credit union’s investment policy statement to reflect that you may be using investments in the CDA that previously weren’t compliant with Part 703. If your credit union happens to have an employee benefits pre-funding program, you may already have inserted this type of language, as the investments may be similar to those of a CDA.
When you’re ready to implement your CDA program, be sure to work with an established partner that can help you stay in compliance and address any regulator or examiner concerns.
John Pesh is Executive Benefits Director at CUNA Mutual Group. For more information about CDAs, contact him at firstname.lastname@example.org.
1 NCUA call report data 12/31/2015 & 12/31/2016
2 NCUA Board Action Bulletin, December 12, 2013
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