Sweep Agreements Target Business Deposit Account Holders
MINNEAPOLIS -- Many financial institutions are turning to sweep repurchase agreements and money market mutual fund sweep agreements to better serve business deposit account customers, according to Art Doten, an attorney with Wolters Kluwer Financial Services.
Under a typical sweep repurchase agreement, a bank and a checking account owner agree that excess funds will be swept out of the checking account at the end of each day in payment for government securities sold by the bank to the checking account owner, Doten wrote in a June 2008 Wolters Kluwer compliance brief. Funds will also be swept back into the checking account at the end of the next business day by the bank repurchasing the government securities from the checking account owner at a price consisting of the original sale price plus interest at an agreed rate.
Doten said under a typical money market mutual fund sweep agreement a bank and a checking account owner agree that excess funds will be swept out of the checking account at the end of each day by the bank initiating purchases on behalf of the checking account owner of shares in a money market mutual fund. To the extent possible, at the end of each day funds will be swept back into the checking account as needed to restore its balance to an agreed level by the bank initiating sales of the shares thus purchased on behalf of the checking account owner, he explained.
Since repurchase agreements and money market mutual finds are not deposits, they are not insured by the FDIC, Doten pointed out, adding this fact must be "conspicuously disclosed" in the agreements. If credit unions use the agreements, they should disclose that such investments are not insured by the National Credit Union Share Insurance Fund, he said.
Doten said there is no regulation expressly prohibiting credit unions from paying dividends on share draft accounts. He cited 12 U.S.C. 1763, which provides that a federally chartered credit union can accrue dividends on share draft accounts and 12 U.S.C. 1785(f)(1) states that except as provided in paragraph two, federally insured credit unions may pay dividends on share draft accounts.
He also noted that 12 U.S.C. 1785(f)(2) provides that paragraph one shall apply only to share draft accounts in which the entire beneficial interest is held by one or more individuals or members or by certain not-for-profit charitable or government entities. The banking provisions regarding NOW accounts, which are interest bearing savings deposits on which any number of checks can be written, (12 U.S.C. 1832(a)) do not apply to credit unions.
Pensions Outpace 401(k)s, Report Reveals
WASHINGTON -- Rates of return for defined benefit pension plans outpaced those for employee-directed 401(k) plans during the most recent bull market from 2003 to 2006, according to an analysis by Watson Wyatt Worldwide, a consulting firm.
The comparison of investment rates of return between DBs and defined contribution plans found that DB plans outperformed 401(k) plans by 1.7 percentage points in 2003, 2.0 points in 2004, 1.1 points in 2005 and 1.6 points in 2006, the data showed. Overall, from 1995 through 2006, DB plans outperformed DC plans by an average of about 1 percentage point per year over this 12-year period, which translate into a cumulative dollar difference of nearly 14% for money invested at the start of the period.
The analysis, the latest in an ongoing series by Watson Wyatt, is based on form 5500 financial and pension disclosure data released by the U.S. Department of Labor. Only companies that sponsor one DB plan and one 401(k) plan, each with at least 100 participants, are included in the data.