1. Give Charitably, Enhance Your Credit Union’s Bottom Line!By
John Moreno
Sr. Executive Benefits Specialist

2. Agenda Market Trends What’s a Charitable Donation Account (CDA)?
CDA Investments
Due Diligence
Case Study

3. Market Trends

4. 90%
of consumers are more likely to trust, and 88% are more loyal to, businesses that support social issues.1
27%
increase in CDA investments in the past year alone, credit unions are seeing the value in a CDA program.2
Market Data
12015 Cone Communications Global CSR Study
2CU 5300 Report, 9/30/2016

5. Credit Union Challenges
Credit unions are philanthropic by nature
Many investments are impermissible to credit unions
Return on Investment (ROI) from traditional investments for credit unions is low
Limited in how you can recognize the service provided by board of directors

6. How much does your credit union contribute each year to 501(c)(3) charitable organizations?
Audience Poll
John to ask Todd about UICU charitable giving relative to overall business strategy?
Why?
How?
To what degree do they do it?
If you are like most credit unions, you are known for your philanthropic and often make donations to the National Credit Union Foundation, local charities and perhaps even your own credit union foundation. But, you need to set limitations on these distributions. A Charitable Donation Account can help!

7. 501(c)(3) Organizations Not-for-Profits in your community
Your State Credit Union League Foundation
National Credit Union Foundation

8. Charitable Donation Account:
Who? What? Why?

9. What is a Charitable Donation Account (CDA)?
Allows credit unions to potentially generate income through non- §703 investments for donations to 501(c)(3) charities
December 2013 – NCUA established §721.3(b)(2) for Federally-chartered credit unions
The primary purpose of a credit union CDA is to generate funds that will be donated to 501(c)(3) charities.
Established by the NCUA in Dec for Federal credit unions (and State-chartered parity credit unions).
What is a
Charitable Donation
Account (CDA)?

10. State Approval of CDAs Check with state regulators for specific rules
States gradually approving
State Approval of CDAs
Work with credit unions and regulators to help get approval
States are gradually approving.
CUNA Mutual Group’s Executive Benefits and Legal teams will work with State credit unions and regulators to help get approval.
State credit unions should check with their regulators for specific rules/approval process.

11. CDA Federal Guidelines* Invest up to 5% of a credit union’s net worth
Minimum 51% of earnings must be donated
Remaining 49% of earnings used as credit union chooses
CDA must remain at or below 5% of net worth
A credit union may invest up to 5% of its net worth in the investment funds, as long as a minimum 51% of the earnings and capital gains are donated.
The remaining 49% of the CDA earnings may be used as the credit union chooses.
CDA must remain below 5% of credit union’s net worth.
*States may have different guidelines.

12. Federal Guidelines, cont.
Separate custodial account or trust
Document distribution frequency – at least every five years (recommend annually)
Name charity(ies)
Document program or plan policy statement
CDA
Federal Guidelines, cont.
A credit union may invest up to 5% of its net worth in the investment funds, as long as a minimum 51% of the earnings and capital gains are donated.
The remaining 49% of the CDA earnings may be used as the credit union chooses.
CDA must remain below 5% of credit union’s net worth.

13. May help generate additional donation funds to make an impact locally, in your state and across the country!
Variety of potentially higher-yielding investment vehicles, otherwise impermissible
Remaining earnings retained by credit union
New way to recognize
board members
Why establish a CDA?
As mentioned, credit unions are philanthropic by nature and often make donations to the NCUF and community charities.
You may wish to donate more, but are unable to do so because of limited funds.
CDA investments may help generate additional donation funds.

14. CDA Investments

15. $1,000,000 Permissible Investment Earning 1%
CDA Investment Income Example
$10,000 Planned Giving by Credit Union
$10,000 Donation Generated
Nothing Additional for CU
$1,000,000 Permissible Investment Earning 1%
$25,500 Donation Generated
$24,500 Income to CU
$1,000,000 CDA Investment Earning 5%
Note: Stated returns are illustrative in nature and are not intended to represent any specific investment.

16. Original Planned Giving
$10,000
Original Planned Giving
$25,500 =
New Total Charitable Contribution
(51% of return) +
OPTION 1:
Director Recognition - $15,500 Contribution in Director’s Name or
OPTION 2:
$15,500 Additional Charitable Donation

17. Business-Owned Life Insurance
Annuities
Investments
Investment/ Product Options
Business-Owned Life Insurance
Combination

18. Due Diligence

19. Regulatory Considerations
NCUA Letter on 5300 CU Call Report (updated March 2014)
NCUA guidelines on impermissible investments (Q or Q1 2017)
FASB Updated Accounting Standards ASU (January 2016)
Regulatory Considerations

20. ASU 2016-01 Rule Issued in January 2016
Deferred compensation
Employee benefits
ASU Rule Issued in January 2016
Charitable donations account
Updated accounting standards for measurement and recognition of financial assets and liabilities
Impacts credit union investment portfolios (including non-703 compliant investments to help fund)
Part of a broader initiative to add clarity to financial statements
to provide decision makers and investors better information with which to make financial decisions,
along with the long term initiative to create convergence between the US accounting standards as set by FASB and international accounting standards as set by IASB.

21. CDA Points for Consideration
Donations have alignment with return expectations
How much are you giving?
Credit union net worth constraints
5% of net worth
Consider credit union risk profile
Review appropriate asset classes/investment strategy
Fixed income
Preferred stock
BOLI
CDA Points for Consideration

22. Due Diligence Document: Legal authority Accounting considerations
Risk management
Document evaluation of alternatives to the program and/or investments
Regulatory reporting items
Ongoing plan review and adjustments
Due Diligence
Has the credit union analyzed the program and/or investments for:
Legal Authority
Accounting Considerations
Risk Management, to include:
Management and board oversight;
Policies and procedures
Pre-purchase analysis;
Ongoing assessments of risk,
Ongoing processes for monitoring and internal controls
Has the credit union evaluated alternatives to the plan and/or investments?
Do the board and management understand the program, and can they relay that understanding to the regulators/examiners to their satisfaction?
Specific items from a regulatory/reporting standpoint:
Call report changes in June, with additional changes expected in March
States providing specific guidance for state chartered credit unions.  Recent activity includes Washington State and Michigan.  Upcoming guidance includes California.
Form 990 reporting of executive compensation plans
IRS reporting of COLI – Form 8925
If additional compensation is involved, has the credit union made a determination as to the reasonableness of that compensation?
Has the credit union conducted due diligence on the plan/product provider?  Following are some specifics to consider:
Planning – is it appropriate to work with a 3rd party vendor in this situation?
Background check
Legal review – including any contracts and thorough understanding of services provided
Financial review
Licensing or certification requirements
Ongoing relationships with 3rd party vendors should include:
Established policies regarding responsibilities, authorities, and reporting requirements
Credit union oversight
Ongoing due diligence process

23. Credit Union Case Study
Charitable Donation Account
Ability to invest up to $14.4M
(5% of net worth)
Funded through institutional managed money
Targeted Total Return = 5.2%
Target Yield = 4.8%
Distributed annually
Offsets current giving to the community (efficiency)
University of Iowa Community CU
North Liberty, Iowa
Assets: $3.5 billion

24. Charitable Donation Account
Best Practices
Charitable Donation Account
Included in strategic plan
CDA policy
Include reference from investment policy statement
Board authorization
Review annually
Distribute based on performance/yield
University of Iowa Community CU
North Liberty, Iowa
Assets: $3.5 billion
Why a CDA       -   This is a big part of their overall strategic plan

25. Do Your Due Diligence! A CDA allows you to: Wrap-Up
Enhance or offset charitable giving
Potentially increase income/earnings
Recognize board members
Possibly even use this as an opportunity to create a foundation for your credit union, if you don’t already have one
Do Your Due Diligence!

26. Questions?
John Moreno
Sr. Executive Benefits Specialist CUNA Mutual Group
, Ext

27. Proprietary insurance is underwritten by CMFG Life Insurance Company
Proprietary insurance is underwritten by CMFG Life Insurance Company. Proprietary and brokered insurance is sold by CUNA Mutual Insurance Agency, Inc., a wholly owned subsidiary. This insurance is not a deposit and is not federally insured or guaranteed by your credit union. For more information, contact your Executive Benefits Specialist at
Representatives are registered through, and securities are sold through, CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, 2000 Heritage Way, Waverly IA 50677, toll-free Insurance and annuity products are sold through CMFG Life Insurance Company. Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the credit union.
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