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ALEXANDRIA, Va.-NCUA determined in a recent legal opinion that federal credit unions have the authority to invest in life insurance products for the purpose of funding employee benefit obligations, use the pooled funding approach, and hold the insurance to maturity. In a legal opinion letter (03-0512), NCUA Associate General Counsel Sheila Albin wrote that federal credit unions could do all these things so long as it is in compliance with NCUA’s rules regarding employee benefits (701.19). “Specifically, among other things, the FCU must demonstrate a direct relationship between the pooled investments held to maturity and the employee benefit obligations to be funded,” she wrote. Albin added that investing in life insurance products is appropriate for funding employee benefits but it must be structured to recover the cost of the benefit and funding, not opportunity costs. “The relief granted by 701.19 from statutory and regulatory investment restrictions does not extend to investments made for an FCU’s own account,” she explained. However, Albin emphasized that purchasing life insurance can be complicated and carries certain risks, so the federal credit union should be aware of the risks associated with them.

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