A Guide to Charitable Donation Accounts for Credit Unions

The NCUA has preapproved the establishment of charitable donation accounts as a permissible activity that is incidental to carrying on a credit union’s business. A charitable donation account (CDA) is an account funded by a credit union with up to 5% of its net worth as a means to provide charitable contributions and donations to qualified charities. It is consistent with the philosophy of “people helping people” and can assist with a credit union’s community engagement.

Additionally, a CDA can generate income that contributes to a credit union’s bottom line, as a CDA may be invested in assets other than those permitted in 12 CFR Part 703 and a portion of the income can be credited to the credit union.

A federal credit union may establish a CDA by complying with the conditions in 12 CFR §721.3(b)(2)[1], which are summarized in this publication. Many state-chartered credit unions are permitted by state law to establish a CDA; review your state law for further information.

What Is a CDA?

A CDA is a “hybrid charitable and investment vehicle” established by a credit union to generate income, a portion of which is paid out in the form of charitable contributions and donations.

How Are Assets Held by a CDA?

The assets allocated to a CDA must be held in a segregated custodial account or special purpose entity, and must be specifically identified as a CDA.

If the CDA is organized as a trust, the trustee must be regulated by the office of the Comptroller of the Currency (OCC), the U.S. Securities and Exchange Commission (SEC), another federal regulatory agency, or a state financial regulatory agency.

What Investments May Be Held by a CDA? Who Makes Investment Decisions?

A CDA is not subject to the investment restrictions in 12 CFR Part 703, so it may be invested in equities or other types of investments that are generally not allowed, commonly referred to as “impermissible investments.” The attached Appendix reproduces the regulatory provisions listing the permissible and impermissible investments for a federal credit union.

A credit union can make investment decisions with its own staff. Alternatively, the credit union can engage a third party to make investment decisions. The investment advisor must be the trustee (if the CDA is organized as a trust), or other third party that is either a registered investment advisor (RIA) or is regulated by the OCC.

Read a ‘Guide to Charitable Donation Accounts’ now.

[1] eCFR :: 12 §CFR 721.3 — What categories of activities are preapproved as incidental powers necessary or requisite to carry on a credit union's business?

Bruce D. Smith is an Executive Benefits Consultant and Founder of PARC Street Group. He partners with credit unions to design and implement durable, compliant Supplemental Executive Retirement Plans (SERPs) that support long-term performance. With more than 40 years of financial services experience, Bruce brings deep technical expertise and a client-focused approach to help executives and boards move forward with clarity and confidence. Since 2014, he and his team have implemented more than 200 split-dollar SERPs, all meeting or exceeding performance expectations. His prior roles include Chief Strategy Officer at Answers.com and senior positions in investment management and venture capital. Bruce holds a BBA in finance from Baruch College and is a CFA®.

Cynthia A. Moore, a member in Dickinson Wright’s Troy office, focuses her practice on employee benefits law. She served as counsel to a diverse group of employers in the tax and ERISA aspects of welfare benefit plans, including Section 125 plans, COBRA compliance, consumer-directed health plans, retiree medical plans, and VEBAs and wellness plans. She also has counseled clients on the implementation of the Patient Protection and Affordable Care Act and has been recognized by Best Lawyers in America® since 2011.

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