Download Give Charitably and Enhance Your Credit Union*s Bottom Line!

Give Charitably, Enhance Your
Credit Union’s Bottom Line!
By
John Moreno
Sr. Executive Benefits Specialist
CUNA Mutual Group Proprietary | Reproduction, Adaptation or Distribution Prohibited | © 2016 CUNA Mutual Group, All Rights Reserved.
1 Market Trends
Agenda
What’s a Charitable
2 Donation Account (CDA)?
3 CDA Investments
4 Due Diligence
5 Case Study
2
Market Trends
3
90%
of consumers are more likely to
trust, and 88% are more loyal
to, businesses that support
social issues.1
27%
increase in CDA investments
in the past year alone, credit
unions are seeing the value in
a CDA program.2
12015
2CU
Cone Communications Global CSR Study
5300 Report, 9/30/2016
Market Data
4
Credit
Union
Challenges
• Credit unions are philanthropic
by nature
• Many investments are
impermissible to credit unions
• Return on Investment (ROI)
from traditional investments for
credit unions is low
• Limited in how you can
recognize the service provided
by board of directors
5
Audience
Poll
How much does your
credit union contribute
each year to 501(c)(3)
charitable
organizations?
6
501(c)(3)
Organizations
• Not-for-Profits in your
community
• Your State Credit Union
League Foundation
• National Credit Union
Foundation
7
Charitable Donation
Account:
Who? What? Why?
8
• Allows credit unions to
potentially generate income
through non- §703
investments for donations
to 501(c)(3) charities
• December 2013 – NCUA
established §721.3(b)(2) for
Federally-chartered credit
unions
What is a
Charitable Donation
Account (CDA)?
9
States gradually
approving
State Approval
of CDAs
Check with
state regulators
for specific
rules
Work with
credit unions
and regulators
to help get
approval
10
CDA
Federal
Guidelines*
• Invest up to 5% of a credit
union’s net worth
• Minimum 51% of earnings must
be donated
• Remaining 49% of earnings
used as credit union chooses
• CDA must remain at or below
5% of net worth
*States may have different guidelines.
11
CDA
Federal
Guidelines,
cont.
• Separate custodial account or
trust
• Document distribution
frequency – at least every
five years (recommend annually)
• Name charity(ies)
• Document program or plan
policy statement
12
• May help generate additional donation
funds to make an impact locally, in your
state and across the country!
• Variety of potentially higher-yielding
investment vehicles, otherwise
impermissible
• Remaining earnings retained by
credit union
• New way to recognize
board members
Why establish
a CDA?
13
CDA Investments
14
CDA Investment Income Example
$10,000
Planned
Giving
by
Credit
Union
$1,000,000 • $10,000 Donation
Permissible Generated
Investment • Nothing
Additional for CU
Earning 1%
$1,000,000
CDA
Investment
Earning 5%
• $25,500 Donation
Generated
• $24,500 Income to
CU
Note: Stated returns are illustrative in nature and are not intended to represent any specific investment.
15
$25,500 =
New Total
Charitable
Contribution
(51% of
return)
$10,000
Original Planned Giving
+
OPTION 1:
Director Recognition - $15,500
Contribution in Director’s Name
or
OPTION 2:
$15,500 Additional
Charitable Donation
16
Annuities
Investments
BusinessOwned Life
Insurance
Combination
Investment/
Product Options
17
Due Diligence
18
• NCUA Letter on 5300 CU Call
Report (updated March 2014)
• NCUA guidelines on impermissible
investments (Q4 2016 or Q1 2017)
• FASB Updated Accounting
Standards ASU 2016-01 (January
2016)
Regulatory
Considerations
19
Employee
benefits
Deferred
compensation
ASU 2016-01 Rule
Issued in January 2016
• Updated accounting
standards for measurement
and recognition of financial
assets and liabilities
Charitable
donations
account
• Impacts credit union
investment portfolios
(including non-703 compliant
investments to help fund)
20
• Donations have alignment with
return expectations
– How much are you giving?
• Credit union net worth constraints
– 5% of net worth
• Consider credit union risk profile
• Review appropriate asset
classes/investment strategy
– Fixed income
– Preferred stock
– BOLI
•CDA Points for
Consideration
21
Due
Diligence
• Document:
̶ Legal authority
̶ Accounting considerations
̶ Risk management
• Document evaluation of
alternatives to the program
and/or investments
• Regulatory reporting items
• Ongoing plan review and
adjustments
22
Credit Union Case Study
Charitable Donation Account
• Ability to invest up to $14.4M
(5% of net worth)
University of
Iowa
Community CU
North Liberty, Iowa
Assets: $3.5 billion
• Funded through institutional
managed money
• Targeted Total Return = 5.2%
• Target Yield = 4.8%
• Distributed annually
• Offsets current giving to the
community (efficiency)
23
Best Practices
Charitable Donation Account
• Included in strategic plan
University of
Iowa
Community CU
North Liberty, Iowa
Assets: $3.5 billion
• CDA policy
• Include reference from
investment policy statement
• Board authorization
• Review annually
• Distribute based on
performance/yield
24
Wrap-Up
A CDA allows you to:
Enhance or offset charitable giving
Potentially increase income/earnings
Recognize board members
Do Your Due Diligence!
25
QUESTIONS?
JOHN MORENO
Sr. Executive Benefits Specialist
CUNA Mutual Group
[email protected]
800.356.2644, Ext. 665.6921
26
Proprietary insurance is underwritten by CMFG Life Insurance Company. Proprietary and brokered insurance is sold by
CUNA Mutual Insurance Agency, Inc., a wholly owned subsidiary. This insurance is not a deposit and is not federally insured
or guaranteed by your credit union. For more information, contact your Executive Benefits Specialist at 800.356.2644.
Representatives are registered through, and securities are sold through, CUNA Brokerage Services, Inc. (CBSI), member
FINRA/SIPC, 2000 Heritage Way, Waverly IA 50677, toll-free 866.512.6109. Insurance and annuity products are sold
through CMFG Life Insurance Company. Non-deposit investment products are not federally insured, involve investment risk,
may lose value and are not obligations of or guaranteed by the credit union.
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