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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. TBPF-1703671.1-0217-0319 © CUNA Mutual Group, 2016 All Rights Reserved www.cunamutual.com