“Giving Tuesday” has gained popularity in recent years as an event timed around Thanksgiving that promotes donating to worthy causes, a counterbalance to the consumption-oriented Black Friday and Cyber Monday promotions.
Giving Tuesday aligns with the credit union ethic of charity and community support. And a recent NCUA rule change gives credit unions the opportunity to increase their charitable contributions.
In December 2013, NCUA opened the door for federal credit unions to contribute to charitable donation accounts (CDA) that use investments previously not compliant with Part 703. Many states now allow state-chartered credit unions to have a CDA, too.
Through professionally managed investment portfolios, a CDA can potentially earn significantly more than traditional credit union investments.
A secondary CDA advantage
NCUA unanimously approved the CDA rule at a December 2013 meeting. NCUA Chairman Debbie Matz said the new ruling sets safeguards to ensure credit unions use CDAs for their intended purposes.
“This innovative rule strikes the right balance to provide flexibility, but ensures that the majority of earnings received from the account will benefit charities and communities, rather than propping up a credit union’s income statement,” Matz said.
One safeguard requires credit unions to dispense at least 51% of their investment returns to qualified 501(c)(3) charities at least every five years. If your credit union fulfills this and other requirements, you can allocate up to 49% of the earnings to your bottom line.
Other stipulations include that credit unions must hold CDA assets in a separate custodial account or special-purpose trust. Also, for federal credit unions, the rule limits total aggregate investment to 5% of a credit union’s net worth. Certain states might have different rules.
Establish a CDA giving strategy
Primarily, a CDA provides credit unions a tool to donate to their favorite charities and foundations, which may include the National Credit Union Foundation or a credit union’s own foundation, while simultaneously increasing return on assets.
Credit unions can enhance the impact of that donation by gifting money in the name of a board member or employee.
Many organizations struggle to find suitable ways to reward volunteer board members, so public recognition in the form of charitable donations is a fitting tribute.
It’s also a great way to acknowledge employees who’ve been involved in a specific charity or community program for many years.
Confirm your CDA giving strategy through a specific board resolution and document that strategy thoroughly.
Also, you’ll probably need to update your credit union’s investment policy statement to reflect that you might use investments in the CDA that previously weren’t compliant with Part 703.
If your credit union has an employee benefits prefunding program, you might already have inserted this type of language, as the investments may be similar to those of a CDA.
In setting up a CDA, be sure to work with an established partner that can help you stay in compliance and address any regulator and examiner concerns.
If you missed the opportunity to make a splash on Giving Tuesday 2015, position your credit union to take advantage of the charitable giving promotion through a CDA on Nov. 29, 2016, and for many more years to come.