[Federal Register Volume 63, Number 189 (Wednesday, September 30, 1998)]
[Rules and Regulations]
[Pages 52146-52147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26114]


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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: Final Rule.

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SUMMARY: NCUA is adopting as final the interim final amendments to part 
724 regarding federal credit unions acting as trustees and custodians 
of pension and retirement plans and part 701 regarding retirement 
benefits for federal credit union employees that were issued in March, 
1998. The final amendments revise part 724 to authorize federal credit 
unions to act as trustees and custodians for Roth IRAs and Education 
IRAs. The final amendments also conform part 701 to be consistent with 
the changes made to part 724.

DATES: Effective January 1, 1998.

ADDRESSES: National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia, 22314-3428.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney, at 
the above address, or telephone at (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Interim Final Rule

    On March 13, 1998, NCUA issued an interim final rule that made the 
above summarized substantive and conforming revisions to part 724 and 
part 701. It became effective upon its publication in the Federal 
Register on March 24, 1998. 63 FR 14025, March 24, 1998. In response to 
a request for comment made in the interim final rule, NCUA received 
four comment letters, three from trade associations and one from a 
federal credit union. Each of the four commenters supported the final 
amendments and also provided additional comments, as discussed below.
    The interim final rule provides that federal credit unions are 
authorized to act as trustees and custodians of Roth IRAs and Education 
IRAs. Such authority is in addition to those trustee and custodian 
services that federal credit unions have been authorized to provide for 
other kinds of pension and retirement plans for approximately the past 
twenty-three years. Two commenters noted that many federal credit 
unions began acting as trustees and custodians of Roth IRAs and 
Education IRAs as early as January 1, 1998, the date on which such 
accounts were available to consumers, and that many other federal 
credit unions did the same between January 1, 1998 and March 23, 1998. 
Each of these two commenters voiced a concern that such action, having 
been taken by federal credit unions in advance of the effective date of 
the interim final rule, could leave many federal credit unions and Roth 
IRA and Education IRA account holders subject to possible tax liability 
or other regulatory difficulties. Specifically, each of these 
commenters noted that, because NCUA did not technically provide federal 
credit unions with regulatory authority to act as trustees and 
custodians for such accounts prior to March 24, 1998, accounts opened 
prior to that date might be viewed as failing to qualify for the 
intended tax treatment under the Internal Revenue Code. Under such 
circumstances, holders of Roth IRA and Education IRA accounts opened 
prior to March 24, 1998, with regular contributions or especially via a 
roll-over from another qualifying plan, could face severe tax 
consequences and other significant financial hardships. Accordingly, 
the commenters urged NCUA to make this final rule effective 
retroactively to January 1, 1998. The tax benefits available to 
individuals through Roth IRA and Education IRA accounts arise through 
amendments to the Internal Revenue Code. Those amendments became 
effective for tax payers as of January 1, 1998. Through the same IRA 
amendments, FCUs' existing statutory authority was expanded. In the 
Board's view, any limitation resulting from the wording of NCUA's 
regulations would raise a technical regulatory violation for an FCU, 
not a tax problem for individual account holders. Nevertheless, to 
avoid any undesirable consequences, cure unintended results and relieve 
federal credit unions acting as trustees and

[[Page 52147]]

custodians of Roth IRAs and Education IRAs of unnecessary restrictions, 
NCUA makes this final rule retroactively effective as of January 1, 
1998. 5 U.S.C. 553(d)(1).
    The remaining two commenters requested NCUA to amend or otherwise 
provide clarification regarding the authority of federal credit unions 
to act as trustees and custodians of state and federal Medical Savings 
Accounts (MSAs). One of these commenters also indicated its preference 
for NCUA to move forward in this regard with a request for comment, 
rather than an advanced notice of proposed rulemaking. As indicated in 
the interim final rule, NCUA requested comment pertaining only to Roth 
IRAs and Education IRAs. NCUA made a request for comment in this manner 
because to amend part 724 and part 701 to address MSAs would entail 
extensive modifications or possibly a new rule and would unduly delay 
satisfying the more immediate need to implement the final amendments 
pertaining to Roth IRAs and Education IRAs. The NCUA agrees with the 
commenters that the role of federal credit unions with respect to the 
administration of MSAs is an issue that warrants regulatory review and 
intends to conduct such a review in a timely fashion.
    In summary, NCUA is adopting the interim final amendments in final, 
without any changes, except to make such amendments effective as of 
January 1, 1998.

Regulatory Procedures

Regulatory Flexibility Act

    This 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 federal credit unions. 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, 
NCUA has determined that a Regulatory Flexibility Analysis is not 
required.

Paperwork Reduction Act

    This final rule does not impose any paperwork requirements.

Executive Order 12612

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

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by Section 551 of the Administrative 
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has 
reviewed this rule and has determined that for purposes of the Small 
Business Regulatory Enforcement Fairness Act of 1996 this is not a 
major rule.

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 23rd day 
of September, 1998.
Becky Baker,
Secretary, NCUA Board.

    For the reasons stated above and in the interim final rule, 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. 98-26114 Filed 9-29-98; 8:45 am]
BILLING CODE 7535-01-U