Michigan Regulator Clarifies Permissible Deferred Compensation Arrangements
The Michigan Credit Union League said the state’s Department of Insurance and Financial Services issued a bulletin last week for state-chartered credit unions that clarifies permissible employee deferred compensation arrangements and investment limitations under the Michigan Credit Union Act.
Currently, MCUA permits state-chartered credit unions to buy insurance policies and other investment products to fund deferred compensation arrangements for employees as long as the arrangement does not present a risk to the safety and soundness of the credit union.
In the past, these types of arrangements were typically structured as bank-owned life insurance policies, according to the Michigan league.
However, the state regulator has found that some credit unions are also utilizing different deferred compensation arrangements not owned by the credit union, such as collateral assignment split dollar plans, according to MCUL.
The CASD arrangements typically utilize a series of loans to an executive to fund the CASD over a period of time, with the proceeds from the whole life insurance policy serving as collateral for the loan.
The Oct. 14th state bulletin outlines minimum initial due diligence requirements and ongoing monitoring for boards of directors to perform and document in order to ensure that a deferred the compensation arrangement does not raise safety and soundness concerns.
It also focuses on the investment relationship (investment funding and obligation related to the deferred compensation arrangement) and accounting and reporting requirements, according to the Michigan league.
The league said it hosted two conference calls for credit union leaders to discuss the bulletin, its implications and next steps for compliance.
The MCUL is advising credit unions to review their existing deferred compensation arrangements for compliance with the DIFS bulletin 2013-18-CU and work with their legal, accounting and insurance professionals to ensure that their plans are in compliance with this guidance.