updated 03/17/14 03:13 PM
NCUA Currently Reviewing
The California Department of Business Oversight (DBO) has issued a statement on Credit Union-Owned Life Insurance (CUOLI) products, saying it "generally does not object to the use of CUOLIs" with proper due diligence and controls in place, and when installed as part of a well-developed and specialized financing strategy.
California state-charted credit unions are required to obtain approval from the DBO prior to purchase of CUOLI products, as they are considered investments. A credit union’s pre-purchase analysis and ongoing measurement and management of CUOLI risks are critical.
CUOLI investments are used to recognize the long-term service of key employees or protect against the loss of key employees. Earnings from these investments may be used to offset related benefits expenses, recover up to the cost of the benefit itself, or fund other employee benefits.
The DBO believes CUOLI investments present potential volatility to a credit union’s earnings and net worth due to liquidity and other considerations. Therefore, the DBO also states that holding excessive CUOLI products represents an unsafe and unsound practice, and that concentration greater than 25 percent of a credit union’s net worth is a "concern." This 25-percent limit is in line with 2004 Federal Financial Institutions Examination Council (FFIEC) guidance.
The National Credit Union Administration (NCUA) is also reviewing the rules for CUOLI investments for federal credit unions. Currently, a federal credit union may purchase an otherwise impermissible investment to fund an employee benefit obligation as long as, among other regulatory requirements, there is a direct relationship between the investment and the employee benefit obligation it serves to fund.
The California and Nevada Credit Union Leagues will keep member credit unions posted on any proposed amendments.
For more information or updates related to CUOLI products, contact California and Nevada Credit Union Leagues Vice President of Regulatory Advocacy Sharon Lindeman at 909-212-6063 or sharonl@ccul.org.
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