NCUA issues share insurance changes

ALEXANDRIA, Va.(3/17/06)—The National Credit Union Administration (NCUA), as planned, issued an interim final rule Thursday to implement a statutory increase to $250,000 in the federal share insurance coverage for certain retirement accounts, effective April 1.

The agency used that rulemaking process also to formalize its legal opinions that pass-thorough insurance coverage applies to 529 tuition programs, and that federal insurance coverage extends to shares denominated in a foreign currency.

The NCUA indicated that currently no state has in place a 529 plan to allow a participant to designate an insured credit union to hold the participant's 529 funds, but that one state has asked the agency to clarify its insurance rule. During the meeting, the NCUA Board also unanimously approved two applications from federal credit unions to convert to community charters, and approved its annual performance budget for 2006 and its five-year strategic plan.

Regarding the share insurance changes, the rule also states that there is pass-though coverage to each participant of an employee benefit plan who is a member of the credit union, but, as required by the new law, it limits the acceptance of shares in employee benefit plans to insured credit unions that are well-capitalized or adequately capitalized.

The agency said it will accept comments on its interim final rule for 60 days after it is published in the Federal Register, and specifically seeks comment on whether it should expand application of pass-through coverage to all employees in an employee benefit plan, regardless of membership status.

The NCUA and the Federal Deposit Insurance Corp. (FDIC), which administers bank and thrift deposit insurance, have been coordinating their efforts to implement the first changes mandated by deposit insurance reforms signed into law in February.

The FDIC issued its interim final rule with comment period on Tuesday, also setting the effective date of the higher insurance ceiling for certain retirement accounts at April 1.

However, the two agencies will act separately on other issues, such as changes to insurance fund logos. The new law allows the National Share Insurance Fund (NCUSIF) seal to carry the statement that "insured share accounts are backed by the full faith and credit of the United States Government", and provides for similar language for the FDIC insurance logo.

Before 2010, the two agencies will again have to coordinate their efforts to implement a reform provision that allows the NCUA and FDIC to consider whether to index the general $100,000 coverage limit, as well as the new $250,000 limit for IRAs and Keoghs, based to inflation. The first increase could occur in 2011, and the process could be repeated every five years.

Also during the Thursday open meeting, the NCUA board voted unanimously to approve the community charter requests of Central Florida Educators FCU, Orlando, and Tri Boro FCU, Munhall, Pennsylvania.

Tri Boro was approved to convert from a 180 select employee group (SEG) to a community charter serving Allegheny and Washington Counties, with a population of nearly 1.5 million. In its application, Tri Boro, with a 51% penetration rate, said it also plans to target the low-income areas of the community with $5 minimum share accounts, micro-loans for as little as $100, $250 credit cards, and risk-based lending that can open up loan opportunities to consumers who might otherwise not qualify, but at better rates than would be available through payday lenders.

Central Florida was granted a charter to serve the counties comprising the Orlando metropolitan statistical area; Orange, Osceola, Seminole and Lake. That credit union's application noted that it will donate $500,000, in $10,000 increments, to schools in the next five years and will provide youth and young adult financial counseling.

In a separate action, the NCUA approved its annual performance budget, which is considered the road map the agency uses to achieve its mission and vision during the year, and its five-year strategic plan, which provides long-term guidance for achieving agency goals. The Credit Union National Association (CUNA) and other stakeholders were asked for comments prior to the agency issuing its strategic goals.

The NCUA stated those goals for 2006-2011 as:

• A safe, sound and healthy credit union system;

• Access to financial services offered by federally insured credit union for all eligible consumers throughout the United Sates; and,

• A prudent, flexible and efficient regulatory environment for all federally insured credit unions.

For more information on statutory changes to share insurance and to read the NCUA documents, use the links below.

Resource Links

CUNA: Share Insurance Information

NCUA Proposals