CUNA Comment Letter

CUNA Supports Proposed Revision of NCUA's Rule on Retirement Benefits for Employees of FCUs

February 19, 2002

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314

RE: Proposed Revision of NCUA’s Rule on Retirement Benefits for Employees of FCUs

Dear Ms. Baker:

The Credit Union National Association appreciates this opportunity to comment on the National Credit Union Administration’s (NCUA’s) proposal on retirement benefits for employees of federal credit unions (FCUs). CUNA represents over 90% of our nation’s more than 10,300 state and federal credit unions.

This proposal amends the agency’s rule that permits an FCU to provide reasonable retirement benefits to its employees and officers. In the Supplementary Information section of the proposed rule, NCUA clarifies that the scope of the rule is not limited only to retirement benefits but is more broadly applicable to other employee benefit plans. The intent of the proposed rule is to provide FCUs with flexibility to use safe, reasonable and efficient methods to fund their employee benefit obligations.

CUNA applauds the Board’s initiative to update the agency’s rule to reflect the evolution in the employee benefits marketplace. In recent years, the employee benefits marketplace has become more sophisticated. Especially in the current economic climate, employees are interested in comprehensive benefit packages. Furthermore, there is increased competition to attract and retain qualified employees. Credit unions certainly have not been immune from this trend. Given this situation, it is extremely important for credit unions to have the added flexibility to create attractive benefits packages that are competitive and will encourage their employees to remain with the FCU. Therefore, CUNA supports updating the language in the regulation to reflect current employee benefits terminology. We also favor expanding the scope of the rule, including the renaming of the rule from “Retirement Benefits for Employees of Federal Credit Unions-- to “Benefits for Employees of Federal Credit Unions,-- to encompass more diverse and innovative forms of employee benefits. However, we believe the rule should be modified even further in this regard. CUNA recommends revising the language in the rule to more clearly state that not only retirement benefits, but also deferred compensation plans, welfare benefits and fringe benefits (such as flexible work schedules, parking facilities, fitness center, travel services, employee training and development, and on-site child care services), are also permissible.

In addition, CUNA commends the Board’s efforts, through this proposal, to expand the types of permissible funding arrangements for such employee benefit plans. It is important for FCU Boards to have funding options for these benefit plans in order to manage them safely and effectively. The proposal would allow FCUs to invest in benefit alternatives, such as mutual funds, which they might not have been able to do previously. We feel that there are sufficient federal laws governing both benefits and retirement plans to ensure the legality of these funding arrangements and ensure that the funds are well protected for the benefit of the FCU employees. In our view, FCUs will continue to be vigilant in their compliance with prescribed safety and soundness standards to ensure that the investments they make on behalf of employee benefit plans will be appropriate and secure given their size and financial condition.

However, CUNA has some concerns with this added section on investments, Section 701.19(b), as proposed. First, the section appears to be inapplicable to corporate credit unions as it is currently written. CUNA feels it is important for corporate credit unions to be able to utilize the wider range of permissible funding arrangements contemplated in the proposal and urges NCUA to clarify that the section applies to the corporates as well. Second, the proposed Section 701.19(b)(1), which incorporates opinions of NCUA’s Office of General Counsel on investments, could be interpreted in an overly restrictive manner. This section allows an FCU investing to fund an employee benefit plan obligation to purchase an investment that would otherwise be impermissible if the investment is directly related to the FCU’s obligation or potential obligation under the employee benefit plan and the FCU holds the investment only for as long as it has an actual or potential obligation under the employee benefit plan. We encourage NCUA to interpret the phrase “directly related-- in a liberal manner so the section provides maximum versatility to credit unions in terms of their funding arrangements.

In summary, CUNA supports this rule with the changes recommended above. It provides FCUs with an expanded range of allowable benefit packages they may offer and options to fund those packages through appropriate and secure funding vehicles. CUNA is always interested in working together with NCUA on ways to make it easier for credit unions to manage their employee benefits within safety and soundness standards.

If you have any questions regarding this letter, please contact CUNA Associate General Counsel Mary Mitchell Dunn at (202) 508-6736 or Senior Regulatory Counsel Catherine Orr at (202) 508-6743.

Sincerely,

Mary Mitchell Dunn
Associate General Counsel

Catherine Orr
Senior Regulatory Counsel