LANSING, Mich. (10/24/13)--The Michigan Department of Insurance and Financial Services (DIFS) last week issued a bulletin for state-chartered credit unions to clarify permissible employee deferred compensation arrangements and investment limitations under the Michigan Credit Union Act.
The Michigan Credit Union League met with DIFS staff prior to issuance of the bulletin (Michigan Monitor Oct. 22).
Currently, the MCUA permits domestic credit unions to "purchase insurance policies and other investment products to fund deferred compensation arrangements for its employees," as long as the arrangement does not present a risk to the safety and soundness of the credit union. In the past, these types of arrangements were typically structured as bank-owned life insurance (BOLI) policies.
However, the Michigan DIFS determined that some credit unions were using different deferred compensation arrangements not owned by the credit union, such as collateral assignment split dollar (CASD) plans. The CASD arrangements typically use a series of loans to an executive to fund the CASD over a period of time, with the proceeds from the whole life insurance policy serving as collateral for the loan.
The Michigan DIFS bulletin outlines minimum initial due diligence requirements and ongoing monitoring for boards of directors to perform and document. The requirements are intended to ensure that a deferred compensation arrangement does not raise safety and soundness concerns. The bulletin also focuses on the investment relationship (investment funding and obligation related to the deferred compensation arrangement) and accounting and reporting requirements.
After working with DIFS on the issue, MCUL hosted two conference calls for state credit unions to discuss the bulletin, its implications and next steps for compliance. The league conference calls featured presentations by John Kolhoff, DIFS Office of Credit Unions deputy director, and commentary and analysis by Holzman Corkery, Doeren Mayhew and CUNA Mutual Group.
Participating credit unions were guided through key parts of the bulletin and learned about due diligence and ongoing monitoring expectations, exam issues and important legal, accounting and call report implications associated with the new guidance.
Michigan credit unions were advised to review their existing deferred-compensation arrangements for compliance with the bulletin, and where necessary, work with their legal, accounting and insurance professionals to ensure that their plans are in compliance with this guidance.