[Federal Register Volume 68, Number 249 (Tuesday, December 30, 2003)]
[Rules and Regulations]
[Pages 75111-75114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31844]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745


Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is amending its share insurance rules to simplify and 
clarify them and provide parity with the deposit insurance rules of the 
Federal Deposit Insurance Corporation (FDIC). Specifically, the 
amendments: Provide continuation of coverage following the death of a 
member and for separate coverage after the merger of insured credit 
unions for limited periods of time; clarify that the interests of 
nonqualifying beneficiaries of a revocable trust account are treated as 
the individually owned funds of the owner even where the owner has not 
actually opened an individual account; and clarify that there is 
coverage for Coverdell Education Savings Accounts, formerly Education 
IRAs.

DATES: This final rule is effective January 29, 2004.

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

SUPPLEMENTARY INFORMATION:

A. Background

    NCUA staff identified part 745 as a regulation in need of updating, 
clarification and simplification. To that end, NCUA issued a proposed 
rule on June 26, 2003 to improve part 745 and maintain parity between 
the separate federal insurance programs administered by NCUA and FDIC. 
68 FR 39868 (July 3, 2003).
    NCUA proposed to provide a six-month grace period for members to

[[Page 75112]]

restructure their insured accounts to maximize insurance coverage in 
each of two separate occurrences. Specifically, NCUA proposed the grace 
periods would take effect upon the death of a member and the merger of 
insured credit unions.
    NCUA explained that the death of a member results in an immediate 
change in the ownership of the member's share accounts. This change in 
ownership could significantly change the amount of share insurance 
coverage available for those accounts, most likely reducing 
coverage.\1\
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    \1\ For example, a husband and wife may hold a joint account, a 
joint revocable trust account for the benefit of their two children, 
and two individual accounts in their own names. Assuming these 
accounts satisfy all applicable requirements, these four accounts 
would be insured up to a maximum of $800,000. The $800,000 is broken 
down as follows: $200,000 for the joint account; $400,000 for the 
joint revocable trust account; and $100,000 for each of the two 
individual accounts. Upon the death of either the husband or wife, 
however, the surviving spouse would become the sole owner of the 
joint account and the joint revocable trust account. Under NCUA 
share insurance rules, the joint account would be transformed into 
an individual account subject to aggregation with the surviving 
spouse's other individual account and insured up to a maximum of 
$100,000. The single ownership (individual) account in the name of 
the deceased spouse would continue to be insured separately from the 
other accounts. The maximum coverage of the joint revocable trust 
account would be reduced from $400,000 to $200,000, because coverage 
for this type of account is calculated as $100,000 for each 
combination of settlors and qualifying beneficiaries. In sum, the 
maximum coverage of the four accounts would be reduced immediately 
upon the death of the husband or wife from $800,000 to $400,000.
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    NCUA recognizes the practical difficulties a member's survivors 
might encounter in attempting to restructure the member's share 
accounts immediately after the member's death, and that these 
difficulties are worsened as they would occur at a time of grief when 
dealing with financial matters may be particularly difficult for the 
member's survivors. Accordingly, NCUA proposed to grant a six-month 
grace period after a member's death for his or her survivors to 
restructure the accounts. During this grace period, the insurance 
coverage of the deceased member's accounts would not change from that 
available immediately before the member's death, unless the accounts 
are restructured during the grace period by those authorized to do so. 
Because the intent of the proposal is to avoid reduced insurance 
coverage, the grace period would not be applied if doing so would 
result in decreased share insurance coverage.
    NCUA also proposed a six-month grace period for members to 
restructure their insured accounts after the merger of insured credit 
unions. NCUA explained that a member's share accounts at an insured 
credit union are insured separately from that member's share accounts 
at any other separately chartered, insured credit union. When a member 
has accounts at more than one insured credit union, a merger of those 
credit unions could reduce the amount of share insurance coverage the 
member had before the merger.\2\
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    \2\ For example, member X has a $75,000 individual account at 
insured credit union A and a $50,000 individual account at insured 
credit union B. Both accounts are fully insured because a member is 
entitled to $100,000 of coverage in the aggregate for all individual 
accounts in each insured credit union. 12 CFR 745.1; 12 CFR 745.3. 
If the credit unions merge, then X would have individual accounts in 
the surviving insured credit union totaling $125,000. X's individual 
accounts would be uninsured for $25,000.
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    NCUA does not believe members should immediately have reduced share 
insurance coverage as a result of credit union mergers. Accordingly, 
NCUA proposed to provide members with a six-month grace period 
following the merger of insured credit unions, during which members 
will receive separate insurance of their accounts as though no merger 
had occurred. NCUA also proposed a methodology for extending insurance 
coverage for share certificates that mature at varying times in 
relation to the merger.\3\
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    \3\ A share certificate that matures after the six-month grace 
period will receive the separate insurance treatment until the first 
maturity date following the grace period. One that matures during 
the six-month grace period and is renewed for the same term and 
amount will receive the separate insurance treatment until the first 
maturity date after the grace period under the terms of the renewed 
certificate. One that matures during the grace period that is not 
renewed, or is renewed on any basis other than for the same term and 
amount as the original certificate, is separately insured only for 
the six-month grace period.
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    NCUA believes insured credit unions should help their members 
benefit from these grace periods wherever possible and reasonable. We 
believe this can be done in a number of ways. For example, insured 
credit unions should make reasonable efforts to explain to their 
members how the grace periods operate. Merging credit unions are 
encouraged to make their members aware of the pending merger as soon as 
possible so members can evaluate their existing accounts and begin to 
plan how to restructure their accounts to maximize their coverage after 
the merger. Once a merger is completed, the surviving credit union 
should make reasonable efforts to notify members with uninsured funds 
as a result of the merger that the grace period has begun to run and 
assist members to restructure their accounts to maximize coverage. NCUA 
encourages insured credit unions to do all of these things as a service 
to their members and to minimize the potential for confusion regarding 
the coverage of their accounts.
    In May 2000, Education IRAs were specified as insurable under 
NCUA's share insurance rules as irrevocable trust accounts. 65 FR 34921 
(June 1, 2000). Since that time, Education IRAs have been replaced with 
Coverdell Education Savings Accounts. NCUA proposed to revise the share 
insurance rules to reflect that change.
    NCUA also proposed to revise its revocable trust account insurance 
rule to address the frequent inquiries NCUA receives regarding how: (1) 
Revocable trusts are created; (2) an owner demonstrates testamentary 
intent; and (3) the interests of nonqualifying beneficiaries are 
treated. In brief, NCUA explained that simple revocable trusts can be 
created at the credit union without the need for a formal written 
trust. NCUA proposed that the member's intent to create a revocable 
trust be noted in the title to the account. NCUA explained that common 
terms used in the account title to create a revocable trust and 
indicate the owner's intent include ``payable on death,'' ``in trust 
for,'' and ``as trustee for,'' or acronyms for these phrases, 
respectively, POD, ITF and ATF. NCUA explained that the account title 
``John Smith POD'' is sufficient to create a revocable trust account. 
NCUA stated in the proposal it believed that naming the beneficiaries 
in the account title is the most effective way of establishing 
insurance coverage, but made it clear that, to be insurable, the 
beneficiaries must only be specifically named somewhere in the credit 
union's account records, not necessarily in the account title.
    Finally, NCUA explained that it treats the interests of 
nonqualifying beneficiaries, those beneficiaries that are not the 
owner's spouse, child, grandchild, parent, brother or sister, as the 
individually owned funds of the owner of the account. In this context, 
these funds would be aggregated with all other individual accounts of 
the owner and insured up to $100,000. NCUA acknowledged that the 
current language of the rule could be read as providing that these 
nonqualifying beneficiary interests would only be insured as the 
individually owned funds of the owner if the owner has actually opened 
an individual account in the insured credit union where the revocable 
trust account is held. NCUA proposed to revise the rule to clarify that 
it will treat nonqualifying beneficiary interests as the individually 
owned funds of the owner even if the owner has not actually opened an

[[Page 75113]]

individual account at the credit union. This is consistent with FDIC's 
treatment of these funds.

B. Summary of Comments

    NCUA received sixteen comment letters regarding the proposed rule: 
Six from federal credit unions (FCUs), two from state credit unions, 
and eight from credit union trade organizations.
    The commenters expressed general support for all of the proposed 
amendments, except for the titling requirement in the revocable trust 
account provision. Fifteen commenters strongly opposed the titling 
requirement and expressed the same or similar concerns. The concerns 
they cited included the great expense of updating their forms and 
systems. The commenters noted a host of problems the titling 
requirement would create for their computer-based data processing 
systems, which they stated presently cannot accommodate the additional 
titling information required by the proposal. Many of these commenters 
stated that the information NCUA proposes to be included in the account 
title could just as easily be captured elsewhere in the account 
documentation without the need to update forms or data processing 
systems. Six commenters were concerned that the titling requirement 
would apply to existing accounts and that it would be expensive and 
labor intensive to identify those accounts to alter their titles to 
comply with the proposal.
    It appears from the comment letters that a significant number of 
commenters misread the titling requirement of the proposal and are 
under the impression it requires that beneficiaries be named in the 
title. As noted above, that is not the case. NCUA proposed only that a 
member's intent to create a revocable trust must be demonstrated in the 
title of the account using commonly accepted terms such as ``in trust 
for,'' ``as trustee for,'' ``payable on death to,'' or any acronym for 
these terms. As noted, NCUA stated that, while it prefers the 
beneficiaries also be listed in the title, it only requires that the 
beneficiaries be named somewhere in the share account records of the 
insured credit union.
    NCUA's intent in proposing the titling requirement was to make it 
simpler for credit union members to create revocable trust accounts and 
to obtain the expanded insurance coverage they seek. NCUA did not 
anticipate the proposed requirement would create any significant, 
additional burden for credit unions and, moreover, did not intend to 
impose the requirement retroactively to existing revocable trust 
accounts. Nevertheless, as a result of the information provided by the 
commenters and other interested parties, NCUA has decided not to adopt 
the proposed titling requirement at this time because of the 
difficulties commenters identified that some FCUs would have in 
adapting their data processing systems and account forms. NCUA 
continues to believe that titling of revocable trust accounts so as to 
indicate the nature of the account would benefit FCUs in a number of 
ways, including enabling FCUs to help members better appreciate the 
nature of their accounts and share insurance coverage. NCUA encourages 
FCUs to modernize and maximize their data processing systems' 
capabilities as much as is practicable, given their circumstances, in 
this regard.
    As noted, there was general support for all the other proposed 
amendments which include: Providing a six-month grace period for 
members to restructure their insured accounts upon the death of a 
member and the merger of insured credit unions; clarifying that the 
interests of nonqualifying beneficiaries of a revocable trust account 
are treated as the individually owned funds of the owner even where the 
owner has not actually opened an individual account; and clarifying 
that there is coverage for Coverdell Education Savings Accounts, 
formerly Education IRAs. There was little specific comment on these 
proposals except that two commenters suggested extending the six-month 
grace periods to one year. NCUA believes six months is a sufficient 
amount of time to restructure insured accounts and consistent with the 
FDIC's deposit insurance rules. Accordingly, these proposed amendments 
are adopted in the final rule without change.

C. Technical Correction

    In 2000, NCUA amended Part 724 of its regulations to permit an FCU 
in a territory, including trust territories, or a possession of the 
United States, or the Commonwealth of Puerto Rico, to act as a trustee 
or custodian for certain pension or profit sharing plans. 65 FR 10933 
(March 1, 2000). At the same time, NCUA amended Sec.  745.9-2 of the 
share insurance rules to clarify that these accounts would be entitled 
to separate share insurance coverage. Id.
    In a subsequent separate rulemaking, NCUA further amended Sec.  
745.9-2 to address coverage of accounts unrelated to the prior 
amendments to Sec.  745.9-2 providing coverage of trust or custodial 
accounts. 65 FR 34921 (June 1, 2000). Inadvertently, the subsequent 
amendments to Sec.  745.9-2 deleted the provision providing coverage 
for trust or custodial accounts. Accordingly, NCUA is reinstating those 
provisions as a technical amendment.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions, defined as those under ten 
million dollars in assets. This rule only clarifies the share insurance 
coverage available to credit union members, without imposing any 
regulatory burden. The final amendments would not have a significant 
economic impact on a substantial number of small credit unions, and, 
therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the final rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The final rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this final rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

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

[[Page 75114]]

instances where NCUA issues a final rule as defined by Section 551 of 
the Administrative Procedure Act. 5 U.S.C. 551. The Office of 
Management and Budget has determined that this rule is not a major rule 
for purposes of the Small Business Regulatory Enforcement Fairness Act 
of 1996.

List of Subjects in 12 CFR Part 745

    Credit unions, Share insurance.

    By the National Credit Union Administration Board on December 
18, 2003.
Becky Baker,
Secretary of the Board.

0
Accordingly, NCUA amends 12 CFR part 745 as follows:

PART 745--SHARE INSURANCE AND APPENDIX

0
1. The authority citation for part 745 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789.


0
2. Section 745.2 is amended by adding paragraphs (e) and (f) to read as 
follows:


Sec.  745.2  General principles applicable in determining insurance of 
accounts.

* * * * *
    (e) Continuation of insurance coverage following the death of a 
member. The death of a member will not affect the member's share 
insurance coverage for a period of six months following death unless 
the member's share accounts are restructured in that time period. If 
the accounts are restructured during the six-month grace period, or 
upon the expiration of the six months if not restructured, the share 
insurance coverage will be provided on the basis of actual ownership of 
the accounts in accordance with the provisions of this part. The 
operation of this grace period, however, will not result in a reduction 
of coverage.
    (f) Continuation of separate share insurance coverage after merger 
of insured credit unions. Whenever the liability to pay the member 
accounts of one or more insured credit unions is assumed by another 
insured credit union, whether by merger, consolidation, other statutory 
assumption or contract: The insured status of the credit unions whose 
member account liability has been assumed terminates, for purposes of 
this section, on the date of receipt by NCUA of satisfactory evidence 
of the assumption; and the separate insurance of member accounts 
assumed continues for six months from the date the assumption takes 
effect or, in the case of a share certificate, the earliest maturity 
date after the six-month period. In the case of a share certificate 
that matures within the six-month grace period that is renewed at the 
same dollar amount, either with or without accrued dividends having 
been added to the principal amount, and for the same term as the 
original share certificate, the separate insurance applies to the 
renewed share certificate until the first maturity date after the six-
month period. A share certificate that matures within the six-month 
grace period that is renewed on any other basis, or that is not 
renewed, is separately insured only until the end of the six-month 
grace period.

0
3. Section 745.4 is amended by revising paragraph (c) to read as 
follows:


Sec.  745.4  Revocable trust accounts.

* * * * *
    (c) If the named beneficiary of a revocable trust account is other 
than the spouse, child, grandchild, parent, brother or sister of the 
account owner, the funds corresponding to that beneficiary shall be 
treated as an individually owned account of the owner, aggregated with 
any other individually owned accounts of the owner, and insured up to 
$100,000. For example, if A establishes an account payable upon death 
to his nephew, the account would be insured as an individual account 
owned by A. Similarly, if B establishes an account payable upon death 
to her husband, son and nephew, two-thirds of the account balance would 
be eligible for revocable trust account coverage up to $200,000 
corresponding to the two qualifying beneficiaries, the spouse and 
child. The amount corresponding to the non-qualifying beneficiary, the 
nephew, would be deemed to be owned by B as an individual account and 
insured accordingly.
* * * * *

0
4. Section 745.9-1 is amended by revising paragraph (c) to read as 
follows:


Sec.  745.9-1  Trust accounts.

* * * * *
    (c) This section applies to trust interests created in Coverdell 
Education Savings Accounts, formerly Education IRAs, established in 
connection with section 530 of the Internal Revenue Code (26 U.S.C. 
530).

0
5. Section 745.9-2 is amended by revising paragraph (a) to read as 
follows:


Sec.  745.9-2  IRA/Keogh accounts.

    (a) The present vested ascertainable interest of a participant or 
designated beneficiary in a trust or custodial account maintained 
pursuant to a pension or profit-sharing plan described under section 
401(d) (Keogh account), section 408(a) (IRA) and section 408A (Roth 
IRA) of the Internal Revenue Code (26 U.S.C. 401(d), 408(a) and 408A), 
or similar provisions of law applicable to a U.S. territory or 
possession, will be insured up to $100,000 separately from other 
accounts of the participant or designated beneficiary. For insurance 
purposes, IRA and Roth IRA accounts will be combined together and 
insured in the aggregate up to $100,000. A Keogh account will be 
separately insured from an IRA account, Roth IRA account or, where 
applicable, aggregated IRA and Roth IRA accounts.
* * * * *

0
6. The Appendix to part 745 is amended by revising the third sentence 
of Section B to read as follows:

Appendix to Part 745--Examples of Insurance Coverage Afforded Accounts 
in Credit Unions Insured by the National Credit Union Share Insurance 
Fund

* * * * *

B. How Are Revocable Trust Accounts Insured?

    * * * If the named beneficiary of a revocable trust account is 
other than the spouse, child, grandchild, parent, brother or sister 
of the account owner, the funds corresponding to that beneficiary 
shall be treated as an individually owned account of the owner, 
aggregated with any other individually owned accounts of the owner, 
and insured up to $100,000. * * *
* * * * *
[FR Doc. 03-31844 Filed 12-29-03; 8:45 am]
BILLING CODE 7535-01-U