ALEXANDRIA, Va. – Federal credit unions have the authority toinvest in a mutual fund as the underlying investment for a 457(f)plan, NCUA recently reminded. In an April 26 opinion letter, theregulator addressed the inquiry from Matadors Community CreditUnion, which is a federally-insured, state-chartered credit union.NCUA used the context for FCUs for this particular FISCU. An FCUhas statutory and regulatory authority to compensate its officersand employees and under this authority, investments made by an FCUto fund an employee benefit obligation are not subject to theinvestment limitations stated in the Federal Credit Union Act andNCUA regulations, the regulator said.

Consequently, an FCU can invest in instruments that areotherwise impermissible provided the investment directly relates tothe FCU's employee benefit obligation. NCUA does limit investmentsby federally-insured corporate credit unions, includingstate-chartered corporate credit unions. The regulator's analysisfor a natural person FISCU differs slightly from the analysis foran FCU and a federally-insured corporate in that if state lawauthorizes a FISCU to make an investment beyond what is authorizedunder FCUA or NCUA, the FISCU must establish and maintain a specialreserve for nonconforming investments. Since FCUA and NCUAregulations authorize investments for employee benefit purposes,the special reserve requirement does not apply, the regulator said.“While corporate credit unions are subject to restrictions oninvestments made on their own behalf, we determined theserestrictions did not apply to investments made for employee benefitpurposes,” wrote NCUA Associate General Counsel Sheila Albin.“Additionally, we expressed the view that this analysis applies tostate-chartered corporate credit unions assuming state law confersan analogous authority to provide employee benefits.” Albin citedtwo previous, related instances including permitting the use of asplit dollar life insurance fund in a Jan. 13, 2005 opinion letterand allowing investment in a mutual fund in a May 11, 2000correspondence. She also deferred the credit union to its statesupervisory authority regarding the permissibility of theinvestment under state law and to other federal and stateauthorities concerning the applicability of laws such as theEmployee Retirement Income Security Act and the Internal RevenueCode to the credit union's investment.