[Federal Register Volume 64, Number 229 (Tuesday, November 30, 1999)]
[Proposed Rules]
[Pages 66812-66816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30694]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 745
Share Insurance and Appendix
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule with request for comments.
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SUMMARY: The NCUA proposes to revise its share insurance regulations
with respect to living trusts, joint revocable trusts, IRA accounts,
public unit accounts, guardian accounts and the application of local
law to share insurance determinations. NCUA also proposes to revise the
substance and format of the Appendix to part 745. These proposals,
which parallel the Federal Deposit Insurance Corporation's (FDIC's)
insurance rules, are intended to maintain parity between NCUA's and
FDIC's insurance programs and to prevent confusion in understanding and
applying the share insurance rules.
DATES: NCUA welcomes comments on these proposals. Comments must be
received on or before January 31, 2000.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand-deliver comments to: National Credit Union
[[Page 66813]]
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. You may
also fax comments to (703) 518-6319 or e-mail comments to
boardmail@ncua.gov. Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney, at
the above address, or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Background
In accordance with NCUA's regulatory review process, NCUA staff has
identified part 745 as one of the regulations in need of updating,
clarification and simplification. On March 23, 1999, the Board of
Directors of the FDIC adopted deposit insurance rule changes regarding
joint accounts and revocable trust accounts. 64 FR 15653 (April 1,
1999). The NCUA Board adopted similar changes on April 15, 1999. 64 FR
19685 (April 22, 1999). At that time, NCUA was aware that additional
changes to part 745 were necessary and would be forthcoming, but
believed that it was important to implement the amendments immediately
regarding joint accounts and revocable trust accounts. NCUA has
completed a more comprehensive review of part 745 and reviewed the
comments submitted in connection with the joint accounts and revocable
trust accounts rule changes. NCUA is now proposing additional
amendments to improve part 745.
B. Proposed Amendments
Living Trust Accounts
A living trust is a formal trust that an owner creates and retains
control over during his or her lifetime. NCUA intends to treat a
revocable trust account that is held in connection with a living trust
in the same manner it treats all other revocable trust accounts, if the
living trust otherwise meets all requirements that pertain to revocable
trust accounts. Living trusts that include conditions that could
prevent a beneficiary from acquiring a vested and non-contingent
interest in the account funds upon the owner's death, however, would
not be entitled to insurance coverage under this section. NCUA will
consider the grantor of a living trust as the owner of the funds in the
account during that person's life. The owner must be a member of the
credit union or otherwise eligible to open the account and qualify for
insurance.
Joint Revocable Trust Accounts
Joint revocable trust accounts are revocable trust accounts, as
described in Sec. 745.4 of NCUA's regulations, that are established by
more than one owner and held for the benefit of others. NCUA proposes
to provide separate insurance coverage for qualifying accounts of this
kind.
Application of State or Local Law To Share Insurance Determinations
In the interest of maintaining uniform national rules and
consistent share insurance determinations, NCUA proposes to clarify the
degree of control that state or local law has on share insurance
determinations. NCUA regulations presently do not state as clearly as
they could that the provisions of part 745 control over state or local
law in determining share insurance coverage. Section 745.2(a) currently
provides that, to the extent local law enters into a share insurance
determination, the law of the jurisdiction in which the insured credit
union's principal office is located will govern. This should be
understood to mean that where an insured credit union has offices in
multiple jurisdictions, the local law of the jurisdiction in which the
insured credit union's principal office is located will control over
the local law of the other jurisdictions where the insured credit union
may have branch offices or service facilities. This is no way effects
the supremacy of federal law. Generally, state law is used to determine
property interests in an account and may be used to determine the
extent of coverage available to particular individuals based on those
rights. However, state law will not extend coverage beyond that
provided under the Federal Credit Union Act or part 745.
Individual Retirement Accounts (IRAs)
NCUA proposes to specify that Roth IRAs and Education IRAs are
included among member accounts eligible for share insurance. These
accounts were first made available to consumers on January 1, 1998.
Although both are colloquially known as IRA accounts, only the Roth IRA
will be treated the same as a traditional IRA for share insurance
purposes under Sec. 745.9-2 of NCUA's regulations. Education IRAs, for
share insurance purposes, will be treated as irrevocable trust accounts
under Sec. 745.9-1 of NCUA's regulations.
Public Unit Accounts
NCUA proposes to liberalize its share insurance coverage for some
kinds of public unit accounts. Currently, public funds invested by an
official custodian of funds of: (1) the United States; (2) any state of
the United States or any county, municipality, or political subdivision
thereof; (3) the District of Columbia; (4) specified territories or
possessions of the United States and (5) tribal funds of any Indian
tribe are generally separately insured up to $100,000. For share
insurance purposes, NCUA proposes to distinguish share draft accounts
from share certificate and regular share accounts in this context. The
result will be to provide insurance coverage up to $100,000 for share
draft accounts and up to an additional $100,000 for share certificate
and regular share accounts. This more liberal coverage will only be
available when an official custodian establishes public unit accounts
in an authorized, federally-insured credit union that is located within
the jurisdiction from which the custodian's authority is derived.
Accounts established outside of that jurisdiction will be limited to
the current $100,000 limit without regard to whether the funds are held
in share draft accounts or share certificate and regular share
accounts.
Guardian Accounts
Currently, funds held in the name of a guardian, custodian or
conservator for the benefit of a ward or minor are insured up to
$100,000 in the aggregate, separately from any other accounts of the
guardian, custodian, conservator, ward or minor. FDIC, however, treats
these accounts as agency or nominee accounts and does not provide
separate insurance coverage. Rather, FDIC adds the guardian account
together with the individual accounts of the beneficiary of the
guardian account and insures that aggregate up to $100,000. NCUA
proposes to treat these accounts in a manner consistent with FDIC's
treatment. This will result in a reduction in insurance coverage.
Appendix to part 745
The Appendix to part 745 provides examples that illustrate the
application of share insurance coverage. NCUA proposes to enhance the
usefulness of the Appendix by incorporating additional information and
examples and putting it into an easy to read question-and-answer
format. The Appendix is not expected to answer every share insurance
question that could conceivably be asked. Rather, its function is to
address and clarify the most common insurance coverage issues in a
simple and manageable format. NCUA intends to continue to update the
Appendix periodically as circumstances arise necessitating further
clarification.
[[Page 66814]]
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any proposed regulation may
have on a substantial number of small credit unions, meaning those
under $1 million in assets.
The NCUA has determined and certifies that the proposed rule, if
adopted, will not have a significant economic impact on a substantial
number of small credit unions. The reasons for this determination are
that the proposed changes to the share insurance regulations will not
increase the premiums paid by credit unions nor will the proposed
changes impose any additional requirements on insured credit unions.
Accordingly, the NCUA has determined that a Regulatory Flexibility
Analysis is not required.
Paperwork Reduction Act
NCUA has determined that the proposed amendments do not increase
paperwork requirements under the Paperwork Reduction Act of 1995 and
regulations of the Office of Management and Budget.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. It states that: ``Federal action limiting
the policy-making discretion of the states should be taken only where
constitutional authority for the action is clear and certain, and the
national activity is necessitated by the presence of a problem of
national scope.'' The proposed rule will not have a direct effect on
the states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government. NCUA has determined that this rule does
not constitute a significant regulatory action for purposes of the
executive order.
Agency Regulatory Goal
NCUA's goal is to promulgate clear and understandable regulations
that impose minimal regulatory burden. We request your comments on
whether the proposed rule is understandable and minimally intrusive, if
implemented as proposed. We also encourage comments that address any
other share insurance issues we have not discussed here.
List of Subjects in 12 CFR Part 745
Credit unions, Pension plans, Share insurance, Trustee.
By the National Credit Union Administration Board, on November
18, 1999.
Becky Baker,
Secretary of the Board.
For the reasons stated above, it is proposed that 12 CFR part 745
be amended as follows:
PART 745--SHARE INSURANCE AND APPENDIX
1. The authority citation for part 745 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782,
1787, 1789.
2. Section 745.2(a) is amended by revising the last sentence to
read as follows:
Sec. 745.2 General principles applicable in determining insurance of
accounts.
(a)* * * While the provisions of this part govern in determining
share insurance coverage, to the extent local law enters into a share
insurance determination, the local law of the jurisdiction in which the
insured credit union's principal office is located will control over
the local law of other jurisdictions where the insured credit union has
offices or service facilities.
* * * * *
3. Section 745.3 is amended by revising paragraph (b) to read as
follows:
Sec. 745.3 Single ownership accounts.
* * * * *
(b) Funds held by a guardian, custodian, or conservator for the
benefit of a ward or for the benefit of a minor under a Uniform Gifts
to Minors Act or Uniform Transfer to Minors Act and deposited in one or
more accounts in the name of the guardian, custodian, or conservator
will, for purposes of this part, be deemed to be accounts held by
agents or nominees and will be insured in accordance with paragraph
(a)(2) of this section.
4. Section 745.4 is amended by adding paragraphs (e) and (f) to
read as follows:
Sec. 745.4 Revocable trust accounts.
* * * * *
(e) Living trusts. Insurance treatment under this section also
applies to revocable trust accounts held in connection with a so-called
``living trust,'' meaning a formal trust which an owner creates and
retains control over during his or her lifetime. If a named beneficiary
in a living trust is a qualifying beneficiary under this section, then
the share account held in connection with the living trust may be
eligible for share insurance under this section, assuming compliance
with all the provisions of this part. If the living trust includes a
defeating contingency that relates to a beneficiary's interest in the
trust assets, then insurance coverage under this section will not be
provided. For purposes of this section, a defeating contingency is
defined as a condition that would prevent the beneficiary from
acquiring a vested and non-contingent interest in the funds in the
share account upon the owner's death.
(f) Joint revocable trust accounts. Where an account described in
paragraph (a) of this section is established by more than one owner and
held for the benefit of others, some or all of whom are within the
qualifying degree of kinship, the respective interests of each owner
held for the benefit of each qualifying beneficiary will be separately
insured up to $100,000. Those interests will be deemed equal unless
otherwise stated in the share account records of the federally-insured
credit union. Interests held for non-qualifying beneficiaries will be
added to the individual accounts of the owners. Where a husband and a
wife establish a revocable trust account naming themselves as the sole
beneficiaries, the account will not be insured according to the
provisions of this section, but will instead be insured in accordance
with the joint account provisions of Sec. 745.8.
5. Section 745.9-1 is amended by adding paragraph (c) to read as
follows:
Sec. 745.9-1 Trust accounts.
* * * * *
(c) This section applies to trust interests created in Education
IRAs established in connection with Sec. 530 of the Internal Revenue
Code (26 U.S.C. 530).
6. Section 745.9-2(a) is revised to read as follows:
Sec. 745.9-2 IRA/Keogh accounts.
(a) The present vested ascertainable interest of a participant or
designated beneficiary in a trust or custodial account maintained
pursuant to a pension or profit-sharing plan described under
Sec. 401(d) (Keogh account), Sec. 408(a) (IRA) and Sec. 408A (Roth IRA)
of the Internal Revenue Code (26 U.S.C. 401(d), 408(a) and 408A) will
be insured up to $100,000 separately from other accounts of the
participant or designated beneficiary. For insurance purposes, IRA and
Roth IRA accounts will be combined together and insured in the
aggregate up to $100,000. A Keogh account will be separately insured
from an IRA account, Roth IRA account or, where applicable, aggregated
IRA and Roth IRA accounts.
* * * * *
[[Page 66815]]
7. Section 745.10 is amended by revising paragraphs (a)(1) through
(a)(5) and (b), and adding a second sentence to paragraph (c) to read
as follows:
Sec. 745.10 Public unit accounts.
(a) * * *
(1) Each official custodian of funds of the United States lawfully
investing the same in a federally-insured credit union will be
separately insured in the amount of:
(i) Up to $100,000 in the aggregate for all share draft accounts;
and
(ii) Up to $100,000 in the aggregate for all share certificate and
regular share accounts;
(2) Each official custodian of funds of any state of the United
States or any county, municipality, or political subdivision thereof
lawfully investing the same in a federally-insured credit union in the
same state will be separately insured in the amount of:
(i) Up to $100,000 in the aggregate for all share draft accounts;
and
(ii) Up to $100,000 in the aggregate for all share certificate and
regular share accounts;
(3) Each official custodian of funds of the District of Columbia
lawfully investing the same in a federally-insured credit union in the
District of Columbia will be separately insured in the amount of:
(i) Up to $100,000 in the aggregate for all share draft accounts;
and
(ii) Up to $100,000 in the aggregate for all share certificate and
regular share accounts;
(4) Each official custodian of funds of the Commonwealth of Puerto
Rico, the Panama Canal Zone, or any territory or possession of the
United States, or any county, municipality, or political subdivision
thereof lawfully investing the same in a federally-insured credit union
in Puerto Rico, the Panama Canal Zone, or any such territory or
possession, respectively, will be separately insured in the amount of:
(i) Up to $100,000 in the aggregate for all share draft accounts;
and
(ii) Up to $100,000 in the aggregate for all share certificate and
regular share accounts;
(5) Each official custodian of tribal funds of any Indian tribe (as
defined in Section 3(c) of the Indian Financing Act of 1974) or agency
thereof lawfully investing the same in a federally-insured credit union
will be separately insured in the amount of:
(i) Up to $100,000 in the aggregate for all share draft accounts;
and
(ii) Up to $100,000 in the aggregate for all share certificate and
regular share accounts;
(b) Each official custodian referred to in paragraphs (a)(2), (3),
and (4) of this section lawfully investing such funds in share accounts
in a federally-insured credit union outside of their respective
jurisdictions shall be separately insured up to $100,000 in the
aggregate for all such accounts regardless of whether they are share
draft, share certificate or regular share accounts.
(c) * * * Where an officer, agent or employee of a public unit has
custody of certain funds which by law or under a bond indenture are
required to be set aside to discharge a debt owed to the holders of
notes or bonds issued by the public unit, any investment of such funds
in an account in a federally-insured credit union will be deemed to be
a share account established by a trustee of trust funds of which the
noteholders or bondholders are pro rata beneficiaries, and the
beneficial interest of each noteholder or bondholder in the share
account will be separately insured up to $100,000.
* * * * *
8. The introductory text to the Appendix to part 745 is amended by
adding a heading to read as follows:
APPENDIX TO PART 745--EXAMPLES OF INSURANCE COVERAGE AFFORDED
ACCOUNTS IN CREDIT UNIONS INSURED BY THE NATIONAL CREDIT UNION
INSURANCE FUND
What is the Purpose of This Appendix?
* * * * *
9. Part A of the Appendix to part 745 is amended by revising the
heading of Part A, the introductory paragraph and Examples 5 and 6 to
read as follows:
A. How are Single Ownership Accounts Insured?
All funds owned by an individual member or, in a community
property state, by the husband-wife community of which the
individual is a member and invested in one or more individual
accounts are added together and insured to the $100,000 maximum.
This is true whether the accounts are maintained in the name of the
individual member owning the funds, in the name of the member's
agent or nominee, or in a custodial loan account on behalf of the
member as a borrower (Secs. 745.3(a)(1), (2) and (3)). For this
purpose, funds held by a guardian, custodian or conservator for the
benefit of a ward or minor shall be treated as an agent or nominee
account.
* * * * *
Example 5
Question: Member C, a minor, maintains an individual account of
$750. C's grandfather makes a gift to him of $100,000, which is
invested in another account by C's father, designated on the credit
union's records as custodian under a Uniform Gift to Minors Act. C's
father, also a member, maintains an individual account of $100,000.
What is the insurance coverage?
Answer: C's individual account and the custodial account held
for him by his father are added together and insured to the $100,000
maximum, leaving $750 uninsured. The individual account held by C's
father is separately insured up to the $100,000 maximum
(Secs. 745.3(a)(1), (a)(2) and b).
Example 6
Question: Member G, a court-appointed guardian, invests
$100,000, which belongs to member W, his ward, in a properly
designated custodial account. W and G each maintain $25,000 in
individual accounts. What is the insurance coverage?
Answer: W's individual account and the guardianship account in
G's name are added together and insured to the $100,000 maximum
leaving $25,000 uninsured. G's individual account is separately
insured to the $100,000 maximum (Secs. 745.3(a)(1), (a)(2) and (b)).
* * * * *
10. Part B of the Appendix to part 745 is amended by revising the
heading of Part B and adding Example 4 to read as follows:
B. How are Revocable Trust Accounts Insured?
* * * * *
Example 4
Question: Member H invests $200,000 in a revocable trust account
held in connection with a living trust with his son, S, and his
daughter, D, as named beneficiaries. What is the insurance coverage?
Answer: Since S and D are children of H, the owner of the
account, the funds would normally be insured under the rules
governing revocable trust accounts up to $100,000 as to each
beneficiary (Sec. 745.4(b)). However, because this account is held
in connection with a living trust whose named beneficiaries are
qualifying beneficiaries under Sec. 745.4, it must be scrutinized to
determine whether the account complies with all other provisions of
this part and whether the living trust contains any defeating
contingencies. Assuming there are no defeating contingencies and
that the account complies with all other requirements of this part,
then it will be treated as any other revocable trust. In this
instance, it will be insured up to $100,000 as to each beneficiary
(Sec. 745.4(e)). Assuming that S and D have equal beneficial
interests ($100,000 each), H is fully insured for this account.
11. Part C of the Appendix to part 745 is amended by revising the
heading of Part C to read as follows:
C. How are Accounts Held by Executors or Administrators Insured?
* * * * *
12. Part D of the Appendix to part 745 is amended by revising the
heading of Part D to read as follows:
D. How are Accounts Held by a Corporation, Partnership or
Unincorporated Association Insured?
13. Part E of the Appendix to part 745 is amended by revising the
heading of
[[Page 66816]]
Part E, the first introductory paragraph and Examples 4 through 7 and
adding new Example 9 to read as follows:
E. How are Public Unit Accounts Insured?
For insurance purposes, the official custodian of funds
belonging to a public unit, rather than the public unit itself, is
insured as the account holder. All funds belonging to a public unit
and invested by the same custodian in a federally-insured credit
union are categorized as either share draft accounts or share
certificate and regular share accounts. If these accounts are
invested in a federally-insured credit union located in the
jurisdiction from which the official custodian derives his
authority, then the share draft accounts will be insured separately
from the share certificate and regular share accounts. Under this
circumstance, all share draft accounts are added together and
insured to the $100,000 maximum and all share certificate and
regular share accounts are also added together and separately
insured up to the $100,000 maximum. If, however, these accounts are
invested in a federally-insured credit union located outside of the
jurisdiction from which the official custodian derives his
authority, then insurance coverage is limited to $100,000 for all
accounts regardless of whether they are share draft, share
certificate or regular share accounts. If there is more than one
official custodian for the same public unit, the funds invested by
each custodian are separately insured. If the same person is
custodian of funds for more than one public unit, he is separately
insured with respect to the funds of each unit held by him in
properly designated accounts. The maximum coverage for an official
custodian of funds of the United States would be $100,000.
* * * * *
Example 4
Question: A city treasurer invests city funds in each of the
following accounts: ``General Operating Account,'' ``School
Transportation Fund,'' ``Local Maintenance Fund,'' and ``Payroll
Fund.'' Each account is available to the custodian upon demand. By
administrative direction, the city treasurer has allocated the funds
for the use of and control by separate departments of the city. What
is the insurance coverage?
Answer: All of the accounts are added together and insured in
the aggregate to $100,000. Because the allocation of the city's
funds is not by statute or ordinance for the specific use of and
control by separate departments of the city, separate insurance
coverage to the maximum of $100,000 is not afforded to each account
(Secs. 745.1(d) and 745.10(a)(2)).
Example 5
Question: A, the custodian of retirement funds of a military
exchange, invests $1,000,000 in an account in an insured credit
union. The military exchange, a non-appropriated fund
instrumentality of the United States, is deemed to be a public unit.
The employees of the exchange are the beneficiaries of the
retirement funds but are not members of the credit union. What is
the insurance coverage?
Answer: Because A invested the funds on behalf of a public unit,
in his capacity as custodian, those funds qualify for $100,000 share
insurance even though A and the public unit are not within the
credit union's field of membership. Since the beneficiaries are
neither public units nor members of the credit union they are not
entitled to separate share insurance. Therefore, $900,000 is
uninsured (Sec. 745.10(a)(1)).
Example 6
Question: A is the custodian of the County's employee retirement
funds. He deposits $1,000,000 in retirement funds in an account in
an insured credit union. The ``beneficiaries'' of the retirement
fund are not themselves public units nor are they within the credit
union's field of membership. What is the insurance coverage?
Answer: Because A invested the funds on behalf of a public unit,
in his capacity as custodian, those funds qualify for $100,000 share
insurance even though A and the public unit are not within the
credit union's field of membership. Since the beneficiaries are
neither public units nor members of the credit union they are not
entitled to separate share insurance. Therefore, $900,000 is
uninsured (Sec. 745.10(a)(2)).
Example 7
Question: A county treasurer establishes the following share
draft accounts in an insured credit union each with $100,000:
``General Operating Fund''
``County Roads Department Fund''
``County Water District Fund''
``County Public Improvement District Fund''
``County Emergency Fund''
What is the insurance coverage?
Answer: The ``County Roads Department,'' ``County Water
District'' and ``County Public Improvement District'' accounts would
each be separately insured to $100,000 if the funds in each such
account have been allocated by law for the exclusive use of a
separate county department or subdivision expressly authorized by
State statute. Funds in the ``General Operating'' and ``Emergency
Fund'' accounts would be added together and insured in the aggregate
to $100,000, if such funds are for countywide use and not for the
exclusive use of any subdivision or principal department of the
county, expressly authorized by State statute (Secs. 745.1(d) and
745.10(a)(2)).
* * * * *
Example 9
Question: A, an official custodian of funds of a state of the
United States, lawfully invests $250,000 of state funds in a
federally-insured credit union located in the state from which he
derives his authority as an official custodian. What is the
insurance coverage?
Answer: If A invested the entire $250,000 in a share draft
account, then $100,000 would be insured and $150,000 would be
uninsured. If A invested $125,000 in share draft accounts and
another $125,000 in share certificate and regular share accounts,
then A would be insured for $100,000 for the share draft accounts
and $100,000 for the share certificate and regular share accounts
leaving $50,000 uninsured (Sec. 745.10(a)(2)). If A had invested the
$250,000 in a federally-insured credit union located outside the
state from which he derives his authority as an official custodian,
then $100,000 would be insured for all accounts regardless of
whether they were share draft, share certificate or regular share
accounts, leaving $150,000 uninsured (Sec. 745.10(b)).
14. Part F of the Appendix to part 745 is amended by revising the
heading of Part F to read as follows:
F. How are Joint Accounts Insured?
* * * * *
15. Part G of the Appendix to part 745 is amended by revising the
heading of Part G and the second sentence of the seventh introductory
paragraph to read as follows:
G. How are Trust Accounts and Retirement Accounts Insured?
* * * Although credit unions may serve as trustees or custodians
for self-directed IRA, Roth IRA and Keogh accounts, once the funds
in those accounts are taken out of the credit union, they are no
longer insured.
* * * * *
[FR Doc. 99-30694 Filed 11-29-99; 8:45 am]
BILLING CODE 7535-01-P
