NCUA Regulation §701.19 governs investments held to fund employee benefit plan obligations.  Under this provision, a credit union may hold otherwise impermissible investments if the investment is “directly related” to the credit union’s obligations or potential obligations under an employee benefit plan. 

Employees benefit obligations include: 

• Defined benefit plan contributions 
• 401(k) match contributions 
• Employee life insurance expenses 
• Employee health insurance expenses 
• Deductible long-and short-term disability expenses 
• Executive Retirement/Nonqualified plan expenses 

Examiner Guidance Considerations:

• Direct relationship test
  
  • Ensure investment income does not exceed projected employee benefit obligations over time
• Thorough due diligence is performed
  
  • Pre-purchase and post-purchase analyses
  • Risks and impacts are well-documented
  • Board is informed and approved investment objectives and activities
• Reasonable retirement benefits
  
  • Based on size and financial condition of credit union, and duties of employees utilize surveys/peer data
• Risk Management and Performance Reviews
  
  • Credit unions are expected to implement appropriate Board policies and
    appropriate investment limits to mitigate risks (i.e., concentration, liquidity,
    interest rate, market, credit, etc.)
  • Ongoing annual risk and financial performance assessments of
    investment products, issuers, and third parties will support rationale for
    investments and regulatory requirements
  • State-chartered credit unions
  • Determine if state-regulations are in parity with federal regulations or if
    additional requirements or limitations must be factored into decision-
    making, due diligence, and ongoing risk management activities