NCUA's Insurance Rule on College Savings Plans Stands, FDIC May Amend its Reg

ALEXANDRIA, Va. – An NCUA rule that allows pass-through share insurance coverage for college savings plans is sufficient as long as the account owner is a member of the federally insured credit union where the account is maintained and the account is properly titled, the regulator recently said. The Wisconsin Credit Union League recently sought clarification on the issue asking if NCUA would consider adopting a rule similar to the FDIC’s interim final rule that would allow pass-through share insurance for 529 plans. In April 2005, the State of Wisconsin contacted NCUA about insurance coverage of share certificates purchased at credit unions under its 529 college savings plan (the Plan). The Plan, as described in a letter from Wisconsin’s Office of Credit Unions, is analogous to an escrow account where the state acts as an escrow agent. “We concluded the state holds the funds as an agent or custodian for the owner and that the rule governing custodial accounts would apply, providing insurance coverage without a change to our insurance regulation,” wrote Sheila Albin, NCUA Associate General Consul in a July 1 opinion letter. Credit unions must ensure that careful titling of the share certificates is necessary to ensure each investor receives individual account coverage. If a state titles the share certificates properly, for example “State of Wisconsin as Custodian for Other Account Owners,” the share certificates would be insured as an account held by an agent or nominee, Albin wrote. Agent or nominee accounts are insured as individual accounts and, along with any other individual accounts an owner might have at the same credit union, insured up to $100,000 in the aggregate. The account owner’s name must also be ascertainable from credit union or state records, she added. A state may title the share certificates in the account owner’s name, and the funds would simply be insured as an individual account. “Either way, our insurance regulation requires the account owner to be a member or otherwise eligible to maintain an insured account in a credit union. This membership requirement is true for insurance coverage of any account under our insurance regulation,” Albin reminded. NCUA said it is aware that FDIC has issued an interim final rule to address providing coverage for the college savings plans. The agency’s interpretation of its rules reaches the same result in terms of coverage, maintaining parity with the account insurance provided by the FDIC in its interim rule, although on a slightly different basis, Albin said. NCUA also said it will consider if it is appropriate or necessary to amend its insurance rule once the FDIC issues a final rule. [email protected]