Expanded Options for Charitable Donation Accounts

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John Pesh, CCE Photo
Director of Executive Benefits
CUNA Mutual Group

3 minutes

Credit unions may be able to broaden their strategic giving. 

Supporting members is a core value of the credit union heritage. Importantly, that support doesn’t only manifest in fair and dignified financial services and products. It’s also found within the engagement credit unions have with causes and communities. 

Because community advancement is part and parcel of the credit union industry, people expect credit unions to do the right thing. Fortunately, there are a growing number of options available for credit unions to do exactly that. 

Among these options is leveraging charitable donation accounts. The strategy empowers credit unions to actively support the causes and communities important to their members and employees, while also broadening the base of investments that back their giving endeavors. 

Qualified Charitable Organizations Expand to Include Veterans, Armed Forces Groups

Credit unions that are already engaged in this strategy may be interested to learn that the number of qualified non-profits they can support has recently broadened to include veterans and armed forces service organizations. 

The National Credit Union Administration recently passed a regulation expanding the definition of a charity eligible for donations under a CDA to include veterans service organizations under 501(c)(19). Just given the fact that veterans make up 6% of the U.S. population, almost every credit union in the country has a connection to the important programs operated by these organizations. That said, a credit union doesn’t need to be directly affiliated with these groups to contribute to them. 

Three Things to Know about CDAs in 2024

A CDA can provide a win-win-win scenario for a credit union to demonstrate commitment to its community and the causes important to constituents.

  1. Credit unions may invest up to 5% of their net worth in non-703/704 investments that dually support charitable giving and executive benefits programs. Funding options include annuities, investments, business-owned life insurance and combinations thereof. 
  2. Earnings and capital gains may be donated to 501(c)(3) and/or 501(c)(19) charities. (This applies to federally chartered and most state-chartered credit unions. See state regulations for confirmation.)
  3. Excess liquidity can be put to work also, providing financial support to an important community cause.

A CDA History Lesson for Interested Credit Unions

The credit union industry has leveraged non-703/704 investments toward strategic initiatives since 2003. That year, NCUA approved the use of these investments to fund employee benefits. Adoption started slowly following the tech bubble, then declined after the economic downturn of 2008. As the economy recovered, credit unions started investing again, making use of the expanded universe of investment options available to them.

Beyond the financial advantages, credit unions also began to realize that charitable investment funding of executive benefits has a softer return. Because executives are often engaged in the selection of charities, they tend to feel some ownership over and responsibility for the donations.

After a decade in play, the strategy received an additional boost in December 2013. That’s when the NCUA established §721.3(b)(2) for federally chartered credit unions. This regulation mandated that funding account gains be tied to donations to 501(c)(3) charities.

Most recently, in November 2023, the NCUA expanded the definition of qualified charity to include 501(c)(19) organizations. 

Investments Contribute to Battle for Top Talent

The CDA funding strategy is widely used across the industry, and adoption continues to grow as credit unions face an unprecedented need to attract and maintain executive leadership. Competitive compensation and executive benefits packages are crucial for credit unions sparring with other financial institutions for a finite resource of top talent.

The start of a new year is an ideal time for credit unions to assess their charity and benefits funding programs. Connecting with current executives—and those identified for succession—is a good first step. By determining the causes and communities important to key leaders, credit unions may establish a relevant and meaningful launching pad for an effective CDA funding strategy.  

A director for Cuna Mutual Group Executive Benefits Solutions, John Pesh consults with credit unions on insurance, investments and advanced planning, including executive compensation, benefits packages and leadership continuity.

The views presented here are the author’s alone and not necessarily representative of opinions held by LPL Financial or any affiliated entity.
CUNA Mutual Group and Cuna Mutual Group are marketing names for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries, and affiliates. Certain brokered insurance products from various insurers may be offered through CUNA Mutual Insurance Agency, a subsidiary of CUNA Mutual Group. Each insurer is solely responsible for the financial obligations under the policies and contracts it issues. For more information, contact your Executive Benefits Specialist at 800-356-2644.
Securities and advisory services, when presented, are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Certain insurance products may be offered through LPL or its licensed affiliates. Registered representatives of LPL offer products and services as part of the executive benefits plans at CUNA Mutual Group. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of CMFG Life Insurance Company or CUNA Mutual Group. Securities and insurance offered through LPL or its affiliates are: Not Insured by NCUA or Any Other Government Agency | Not Credit Union Guaranteed | Not Credit Union Deposits or Obligations | May Lose Value
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