[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