[Federal Register Volume 63, Number 56 (Tuesday, March 24, 1998)]
[Rules and Regulations]
[Pages 14025-14026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7346]



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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 724


Organization and Operation of Federal Credit Unions; Trustees and 
Custodians of Pension Plans

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: On February 20, 1998, NCUA issued a letter to federally 
insured credit unions regarding share insurance coverage on member 
accounts established as Education IRAs, Roth IRAs, Savings Incentive 
Match Plan for Employees and Medical Savings Accounts. Although these 
accounts can be established in federal credit unions, the letter noted 
that federal credit unions cannot act as trustees or custodians for 
these types of accounts. The basis for that statement was the current 
wording of NCUA regulations, which references specific provisions of 
the Internal Revenue Code. This interim rule corrects that part by 
including additional specific references to Internal Revenue Code 
provisions for certain of these accounts. It also makes a conforming 
amendment to the rule regarding retirement benefits for federal credit 
union employees.

DATES: Effective March 24, 1998. Comments must be received on or before 
May 20, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand-deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Fax 
comments to (703) 518-6319. E-mail comments to [email protected]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: James J. Engel, Deputy General 
Counsel, at the above address, or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    NCUA recently issued a Letter to Credit Unions (Letter No. 98-CU-5, 
February 20, 1998) to advise all federally insured credit unions of 
share insurance coverage on several new types of member accounts: 
Education IRAs, Roth IRAs, Savings Incentive Match Plan for Employees 
(SIMPLE) accounts and Medical Savings Accounts (MSAs). While these 
accounts could be established in federal credit unions, the letter 
noted that federal credit unions could not act as trustees or 
custodians of such accounts. This has caused considerable confusion 
because federal credit unions have been serving as traditional IRA 
trustees or custodians since 1975. (12 CFR Part 721--Incidental Powers, 
Sec. 721.4. 40 FR 25582, June 17, 1975.) Currently, however, because 
part 724 specifically references only Internal Revenue Code (IRC) 
sections 401(d) and 408, it unintentionally limits federal credit union 
involvement in the newer accounts established under different IRC 
provisions. The purpose of this interim rule is to correct this problem 
immediately with respect to Roth IRAs and Education IRAs and to request 
comment on additional changes that may be needed for these accounts as 
well as for MSAs and similar accounts.
    The Letter to Credit Unions was issued in response to recent 
amendments to the IRC whereby Congress created new types of accounts 
that receive special tax treatment. Congress specified the types of 
organizations that could serve as fiduciaries for these accounts. 
Congress included federally insured credit unions in the list of 
qualified organizations by including them in a special definition of 
``bank'' contained in the current IRC section 408(n). This definition 
has been used in IRC section 401(f)(2)--for 401(d) plans (Keogh 
Accounts)--and in IRC section 408(a)(2) for traditional IRAs 
established under IRC section 408. Part 724 references both 401(d) and 
408 plans. Congress has now used this same definition for MSAs, IRC 
section 220(d)(1)(B), and Education IRAs, IRC section 530(b)(1)(B). For 
a Roth IRA, Congress provided in IRC section 408A(a) that such an 
account is to be treated as an individual retirement plan, unless 
otherwise noted. An individual retirement plan includes an IRA under 
408. IRC section 7701(a)(37). Thus, federal credit unions, being 
federally insured, are qualified to be fiduciaries of all of these 
types of accounts.
    A fiduciary, either a trustee or custodian, of these newer types of 
accounts performs essentially the same types of duties as a fiduciary 
of a traditional Keogh or IRA. In the case of a federal credit union, 
the funds are invested in insured share accounts. As a fiduciary, a 
federal credit union maintains accounting records similar to those for 
any savings account and sends the member and the IRS tax information. 
In the case of self-directed plans, a federal credit union follows a 
member's instructions and facilitates the transfer to other investments 
in accordance with Sec. 724.2. For some types of accounts, a federal 
credit union would also withhold income tax and compute periodic 
payment amounts. In general, the highest administrative burden is on 
fiduciaries of traditional IRAs and Keogh accounts because these 
accounts are subject to complex distribution requirements.
    Federal credit unions have been providing IRA trustee and custodial 
services for almost 23 years. In its examination and supervision of 
federal credit unions during this period of time, NCUA has seen no 
indication of regulatory problems arising from this activity. This 
historical performance provides ample evidence that federal credit 
unions can provide the same services for the new types of accounts. 
However, this interim rule will only address the Roth and Education 
IRAs. The provisions regarding these accounts became effective January 
1, 1998, and it is the Board's understanding that these are the types 
of accounts that federal credit union members are now most interested 
in establishing. There is no public interest served by delaying 
immediate action on these accounts.

Amendments

1. Part 701

    Federal credit unions are authorized to provide reasonable 
retirement benefits for their employees under Sec. 701.19. If a federal 
credit union is to be a trustee or custodian, the retirement plan must 
be an IRA maintained in accordance with part 724. To conform to the 
changes in part 724, this section is being amended by deleting the 
phrase ``an individual retirement account.'' Section 701.19 will now 
require that the plan be ``authorized and'' maintained in accordance 
with part 724.

2. Part 724

    Part 724 is being amended only with regard to Roth IRAs and 
Education IRAs. This is accomplished by adding references to IRC 
sections 408A, for Roth IRAs, and 530, for Education IRAs, in 
Sec. 724.1. There is no need for a specific amendment to cover SIMPLE 
Retirement Accounts (SRAs) because those accounts are already covered 
under IRC section 408, specifically section 408(p), and thus already 
covered by Sec. 724.1.

Request for Comments

    The Board is requesting comments on the changes made by this 
interim final rule concerning Roth IRAs and Education IRAs. As noted 
above, the Board is not amending or proposing any specific amendments 
regarding MSAs. To do so now would require more extensive modification 
to part 724, or

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possibly a completely new rule, and would only delay the much needed 
IRA revisions.
    Further, MSAs are a pilot program and the Board is not aware of any 
particular urgency to address these types of accounts immediately.
    The Board expects to issue shortly a request for comments or 
advanced notice of proposed rulemaking to solicit comments on MSAs and 
will evaluate the need for regulatory changes after receipt of 
comments. That notice will likely solicit comments as well regarding 
whether other regulatory changes are needed to address IRC section 
401(k) plans, including SIMPLE 401(k) plans, and Simplified Employee 
Pension (SEP) plans.

Regulatory Procedures

Regulatory Flexibility Act

    This interim final rule conforms the current regulation to recent 
changes in the federal tax law and does not expand upon the nature of 
the activity authorized for a federal credit union. The Board has 
determined and certifies that this rule will not have a significant 
economic impact on a substantial number of small credit unions. 
Accordingly, the NCUA Board has determined that a Regulatory 
Flexibility Analysis is not required.

Paperwork Reduction Act

    This interim rule does not impose any paperwork requirements.

Executive Order 12612

    This interim rule only applies to federal credit unions. It has no 
affect on the regulation of state-chartered credit unions.

List of Subjects

12 CFR Part 701

    Credit unions.

12 CFR Part 724

    Credit unions, Pensions, Reporting and recordkeeping requirements, 
Trusts and trustees.

    By the National Credit Union Administration Board, this 13th day 
of March, 1998.
Becky Baker,
Secretary, NCUA Board.

    For the reasons stated in the preamble, NCUA amends 12 CFR chapter 
VII as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 15 U.S.C. 3717. Section 701. 31 is also authorized by 
15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. Section 701.35 
is also authorized by 42 U.S.C. 4311 -4312.

    2. Revise the second sentence of Sec. 701.19(a) to read as follows:


Sec. 701.19  Retirement benefits for employees of Federal credit 
unions.

    (a) * * * In those cases where a Federal credit union is to be a 
plan trustee or custodian, the plan must be authorized and maintained 
in accordance with the provisions of part 724 of this chapter. * * *
* * * * *

PART 724--TRUSTEES AND CUSTODIANS OF PENSION PLANS

    3. The authority citation for part 724 is revised to read as 
follows:

    Authority: 12 U.S.C. 1757, 1765, 1766 and 1787.

    4. In Sec. 724.1, revise the section heading and first sentence to 
read as follows:


Sec. 724.1  Federal credit unions acting as trustees and custodians of 
pension and retirement plans.

    A federal credit union is authorized to act as trustee or 
custodian, and may receive reasonable compensation for so acting, under 
any written trust instrument or custodial agreement created or 
organized in the United States and forming part of a pension or 
retirement plan which qualifies or qualified for specific tax treatment 
under sections 401(d), 408, 408A and 530 of the Internal Revenue Code 
(26 U.S.C. 401(d), 408, 408A and 530), for its members or groups of its 
members, provided the funds of such plans are invested in share 
accounts or share certificate accounts of the Federal credit union. * * 
*

[FR Doc. 98-7346 Filed 3-23-98; 8:45 am]
BILLING CODE 7535-01-p