Charitable Donation Account and Benefits Pre-Funding Basics

coins in a donate jar
By Mark Wilson

2 minutes

What do the NCUA amendments mean for your CU?

In December 2013, the National Credit Union Administration amended regulations §703 and §721 to allow federal credit unions to contribute to charitable donation accounts using previously impermissible investments. Since then, many states have allowed their state-chartered credit unions to do the same.

This means your CU can invest CDA funds in certain corporate bonds, securities, and business-owned life insurance that couldn’t be used for that purpose before.

NCUA’s CDA rule change gives CUs the flexibility to increase investment earnings while helping to limit risk to their overall financials. The rules also ensure that the majority of earnings are donated to charity. Key requirements for CDAs include: the aggregate annual investment in a credit union’s CDAs is limited to 5 percent of its net worth; assets in a CDA must be held in a separate custodial account or special-purpose trust; a CU must distribute a minimum of 51 percent of the CDA total returns to charities at least every five years; donations must be to tax-exempt 501(c)(3) charities; and accounting for CDAs must follow GAAP principles.

NCUA also requires that CU boards document their policies relating to CDAs to clearly show how they will adhere to regulations and to establish their investment strategies and risk tolerances.

A CDA portfolio can be built relatively safely and still potentially yield significantly higher earnings than the CDs and government-backed securities credit unions typically invest in. Even a conservative CDA portfolio can make a big difference in a CU’s ability to support its chosen charities.

For example, say you invest $1 million for a year in a CDA that earns a 5 percent return (interest + dividends + capital gains) and $1 million in certificate of deposit that earns 1 percent. With your CDA earnings, you can choose to contribute a minimum of $25,500 to charity from the CDA—and retain $24,500 as income—but your contribution from the CD return is a maximum of $10,000. In this scenario, you would also have the option to contribute the entire $50,000 in CDA earnings to charity.

Unlike a CD, however, with a CDA there is risk that your investments will underperform. It’s critical to have someone with experience administering CDAs and experience managing the investments credit unions are allowed to make.

If this sounds familiar, it’s because NCUA made a similar change to §701.19 in 2003, allowing similar investments for pre-funding employee benefits obligations.

Common expenses to pre-fund through these programs include premiums for group health, group life, short/long-term disability insurance, 401(k) matching funds and retiree health coverage.

A benefits pre-funding plan does not replace a credit union’s normal method of paying for employee benefits from its operating capital. These programs simply add another source of potential long-term income to help pay for certain benefit expenses.

Mark Wilson is senior executive benefits specialist for CUESolutions provider CUNA Mutual Group, Madison, Wis. Reach him at Learn more about CUESolutions by emailing

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