(a) A credit union may invest in charitable donation accounts, or CDAs, in accordance with this section as a means of providing charitable contributions and donations to qualified charities. If a credit union invests in a CDA that satisfies all of the conditions in subdivision (b), then it may do so free from any other investment limitations of this article.

(b) (1) The book value of a credit union’s investments in all CDAs, in the aggregate, as carried on the credit union’s statement of financial condition prepared in accordance with generally accepted accounting principles, shall be limited to no more than 5 percent of the credit union’s net worth at all times for the duration of the accounts, as measured every quarterly call report cycle. A credit union shall bring its aggregate accounts into compliance with the maximum aggregate funding limit within 30 days of any breach of this limit.

(2) The assets of a CDA shall be held in a segregated custodial account or special purpose entity and shall be specifically identified as a CDA.

(3) If a credit union chooses to establish a CDA using a trust vehicle, the trustee shall be regulated by a federal regulatory agency, or a state financial regulatory agency. A regulated trustee or other person or entity that is authorized to make investment decisions for a CDA (manager), other than the credit union itself, shall be either: (A) a registered investment adviser; or (B) regulated by a federal regulatory agency or a state financial regulatory agency.

(4) The parties to the CDA, typically the funding credit union and trustee or other manager of the account, shall document the terms and conditions controlling the account in a written agreement. The terms of the agreement shall be consistent with this section. The board of directors shall adopt written policies governing the creation, funding, and management of a CDA that are consistent with this section, shall review the policies annually, and may amend the policies from time to time. A credit union’s CDA agreement and policies, at a minimum, shall comply with all of the following:

(A) Provide that the CDA shall make charitable contributions and donations only to qualified charities.

(B) Document the investment strategies and risk tolerances the CDA trustee or other manager is required to follow in administering the account.

(C) Provide that the credit union shall account for all aspects of the CDA, including, but not limited to, distributions to charities and liquidation of the account, in accordance with generally accepted accounting principles.

(D) Indicate the frequency with which the trustee or manager of the CDA shall make distributions to qualified charities, as provided in paragraph (5).

(5) A credit union shall distribute to one or more qualified charities, at least once every five years, and upon termination of a CDA, regardless of the length of its term, a minimum of 51 percent of the account’s total return on assets over the period of up to five years. Other than upon termination, the credit union may choose how frequently CDA distributions to charity shall be made during each period of up to five years. The credit union may choose to make periodic distributions over a period of up to five years, or only a single distribution as required at the end of that period. A credit union may choose to donate in excess of the minimum distribution frequency and amount.

(6) Upon termination of the CDA, the credit union may receive a distribution of the remaining account assets in cash or a distribution in kind of the remaining account assets, but only if those assets are permissible investments for credit unions.

(c) For purposes of this section, the following definitions apply:

(1) “Affiliate” means an entity in which the credit union has any ownership interest directly or indirectly. “Affiliate” does not apply to ownership due to the funding of employee benefits.

(2) “Charitable contributions and donations” are gifts credit unions provide to assist qualified charities through contributions of staff, equipment, money, or other resources.

(3) “Charitable donation account” or “CDA” is a hybrid charitable and investment vehicle that satisfies the conditions set forth in subdivision (b).

(4) “Distribution in kind” means the credit union’s acceptance of remaining CDA assets, upon termination of the account, in their original form instead of in cash resulting from the liquidation of the assets.

(5) “Qualified charity” means a charitable organization or other nonprofit entity recognized as exempt from taxation under Section 501(c)(3) of the Internal Revenue Code.

(6) “Registered investment adviser” means an investment adviser registered with the Securities Exchange Commission pursuant to the Investment Advisers Act of 1940.

(7) “Total return” means the actual rate of return on all investments in a CDA over a given period of up to five years, including realized interest, capital gains, dividends, and distributions, but exclusive of account fees and expenses provided they were not paid to the credit union that established the CDA or to any of its affiliates.

(Added by Stats. 2018, Ch. 267, Sec. 3. (AB 2862) Effective January 1, 2019.)