[Federal Register Volume 63, Number 56 (Tuesday, March 24, 1998)]
[Rules and Regulations]
[Pages 14025-14026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7346]
[[Page 14025]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 701 and 724
Organization and Operation of Federal Credit Unions; Trustees and
Custodians of Pension Plans
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule with request for comments.
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SUMMARY: On February 20, 1998, NCUA issued a letter to federally
insured credit unions regarding share insurance coverage on member
accounts established as Education IRAs, Roth IRAs, Savings Incentive
Match Plan for Employees and Medical Savings Accounts. Although these
accounts can be established in federal credit unions, the letter noted
that federal credit unions cannot act as trustees or custodians for
these types of accounts. The basis for that statement was the current
wording of NCUA regulations, which references specific provisions of
the Internal Revenue Code. This interim rule corrects that part by
including additional specific references to Internal Revenue Code
provisions for certain of these accounts. It also makes a conforming
amendment to the rule regarding retirement benefits for federal credit
union employees.
DATES: Effective March 24, 1998. Comments must be received on or before
May 20, 1998.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand-deliver comments to: National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Fax
comments to (703) 518-6319. E-mail comments to boardmail@ncua.gov.
Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: James J. Engel, Deputy General
Counsel, at the above address, or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
Background
NCUA recently issued a Letter to Credit Unions (Letter No. 98-CU-5,
February 20, 1998) to advise all federally insured credit unions of
share insurance coverage on several new types of member accounts:
Education IRAs, Roth IRAs, Savings Incentive Match Plan for Employees
(SIMPLE) accounts and Medical Savings Accounts (MSAs). While these
accounts could be established in federal credit unions, the letter
noted that federal credit unions could not act as trustees or
custodians of such accounts. This has caused considerable confusion
because federal credit unions have been serving as traditional IRA
trustees or custodians since 1975. (12 CFR Part 721--Incidental Powers,
Sec. 721.4. 40 FR 25582, June 17, 1975.) Currently, however, because
part 724 specifically references only Internal Revenue Code (IRC)
sections 401(d) and 408, it unintentionally limits federal credit union
involvement in the newer accounts established under different IRC
provisions. The purpose of this interim rule is to correct this problem
immediately with respect to Roth IRAs and Education IRAs and to request
comment on additional changes that may be needed for these accounts as
well as for MSAs and similar accounts.
The Letter to Credit Unions was issued in response to recent
amendments to the IRC whereby Congress created new types of accounts
that receive special tax treatment. Congress specified the types of
organizations that could serve as fiduciaries for these accounts.
Congress included federally insured credit unions in the list of
qualified organizations by including them in a special definition of
``bank'' contained in the current IRC section 408(n). This definition
has been used in IRC section 401(f)(2)--for 401(d) plans (Keogh
Accounts)--and in IRC section 408(a)(2) for traditional IRAs
established under IRC section 408. Part 724 references both 401(d) and
408 plans. Congress has now used this same definition for MSAs, IRC
section 220(d)(1)(B), and Education IRAs, IRC section 530(b)(1)(B). For
a Roth IRA, Congress provided in IRC section 408A(a) that such an
account is to be treated as an individual retirement plan, unless
otherwise noted. An individual retirement plan includes an IRA under
408. IRC section 7701(a)(37). Thus, federal credit unions, being
federally insured, are qualified to be fiduciaries of all of these
types of accounts.
A fiduciary, either a trustee or custodian, of these newer types of
accounts performs essentially the same types of duties as a fiduciary
of a traditional Keogh or IRA. In the case of a federal credit union,
the funds are invested in insured share accounts. As a fiduciary, a
federal credit union maintains accounting records similar to those for
any savings account and sends the member and the IRS tax information.
In the case of self-directed plans, a federal credit union follows a
member's instructions and facilitates the transfer to other investments
in accordance with Sec. 724.2. For some types of accounts, a federal
credit union would also withhold income tax and compute periodic
payment amounts. In general, the highest administrative burden is on
fiduciaries of traditional IRAs and Keogh accounts because these
accounts are subject to complex distribution requirements.
Federal credit unions have been providing IRA trustee and custodial
services for almost 23 years. In its examination and supervision of
federal credit unions during this period of time, NCUA has seen no
indication of regulatory problems arising from this activity. This
historical performance provides ample evidence that federal credit
unions can provide the same services for the new types of accounts.
However, this interim rule will only address the Roth and Education
IRAs. The provisions regarding these accounts became effective January
1, 1998, and it is the Board's understanding that these are the types
of accounts that federal credit union members are now most interested
in establishing. There is no public interest served by delaying
immediate action on these accounts.
Amendments
1. Part 701
Federal credit unions are authorized to provide reasonable
retirement benefits for their employees under Sec. 701.19. If a federal
credit union is to be a trustee or custodian, the retirement plan must
be an IRA maintained in accordance with part 724. To conform to the
changes in part 724, this section is being amended by deleting the
phrase ``an individual retirement account.'' Section 701.19 will now
require that the plan be ``authorized and'' maintained in accordance
with part 724.
2. Part 724
Part 724 is being amended only with regard to Roth IRAs and
Education IRAs. This is accomplished by adding references to IRC
sections 408A, for Roth IRAs, and 530, for Education IRAs, in
Sec. 724.1. There is no need for a specific amendment to cover SIMPLE
Retirement Accounts (SRAs) because those accounts are already covered
under IRC section 408, specifically section 408(p), and thus already
covered by Sec. 724.1.
Request for Comments
The Board is requesting comments on the changes made by this
interim final rule concerning Roth IRAs and Education IRAs. As noted
above, the Board is not amending or proposing any specific amendments
regarding MSAs. To do so now would require more extensive modification
to part 724, or
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possibly a completely new rule, and would only delay the much needed
IRA revisions.
Further, MSAs are a pilot program and the Board is not aware of any
particular urgency to address these types of accounts immediately.
The Board expects to issue shortly a request for comments or
advanced notice of proposed rulemaking to solicit comments on MSAs and
will evaluate the need for regulatory changes after receipt of
comments. That notice will likely solicit comments as well regarding
whether other regulatory changes are needed to address IRC section
401(k) plans, including SIMPLE 401(k) plans, and Simplified Employee
Pension (SEP) plans.
Regulatory Procedures
Regulatory Flexibility Act
This interim final rule conforms the current regulation to recent
changes in the federal tax law and does not expand upon the nature of
the activity authorized for a federal credit union. The Board has
determined and certifies that this rule will not have a significant
economic impact on a substantial number of small credit unions.
Accordingly, the NCUA Board has determined that a Regulatory
Flexibility Analysis is not required.
Paperwork Reduction Act
This interim rule does not impose any paperwork requirements.
Executive Order 12612
This interim rule only applies to federal credit unions. It has no
affect on the regulation of state-chartered credit unions.
List of Subjects
12 CFR Part 701
Credit unions.
12 CFR Part 724
Credit unions, Pensions, Reporting and recordkeeping requirements,
Trusts and trustees.
By the National Credit Union Administration Board, this 13th day
of March, 1998.
Becky Baker,
Secretary, NCUA Board.
For the reasons stated in the preamble, NCUA amends 12 CFR chapter
VII as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 15 U.S.C. 3717. Section 701. 31 is also authorized by
15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. Section 701.35
is also authorized by 42 U.S.C. 4311 -4312.
2. Revise the second sentence of Sec. 701.19(a) to read as follows:
Sec. 701.19 Retirement benefits for employees of Federal credit
unions.
(a) * * * In those cases where a Federal credit union is to be a
plan trustee or custodian, the plan must be authorized and maintained
in accordance with the provisions of part 724 of this chapter. * * *
* * * * *
PART 724--TRUSTEES AND CUSTODIANS OF PENSION PLANS
3. The authority citation for part 724 is revised to read as
follows:
Authority: 12 U.S.C. 1757, 1765, 1766 and 1787.
4. In Sec. 724.1, revise the section heading and first sentence to
read as follows:
Sec. 724.1 Federal credit unions acting as trustees and custodians of
pension and retirement plans.
A federal credit union is authorized to act as trustee or
custodian, and may receive reasonable compensation for so acting, under
any written trust instrument or custodial agreement created or
organized in the United States and forming part of a pension or
retirement plan which qualifies or qualified for specific tax treatment
under sections 401(d), 408, 408A and 530 of the Internal Revenue Code
(26 U.S.C. 401(d), 408, 408A and 530), for its members or groups of its
members, provided the funds of such plans are invested in share
accounts or share certificate accounts of the Federal credit union. * *
*
[FR Doc. 98-7346 Filed 3-23-98; 8:45 am]
BILLING CODE 7535-01-p
