Below are examples of asset types commonly seen on a credit union balance sheet. The accounting described below is a general description of accounting treatment. Exam staff should reference more specific accounting guidance if concerns at a credit union are noted. Credit unions should be aware of the accounting treatment for assets purchased to fund general benefit obligations before purchasing an asset.
General Benefit Funding
A credit union may acquire various types of assets, including mutual funds or life insurance policies, to fund general benefit obligations. These assets should generally be reported as unrestricted assets.
Under GAAP, assets used to fund general benefit obligations may need to be reported at their liquidation value. A credit union may need to report the difference between purchase price and liquidation value on the income statement, as well as periodic value changes.
Nonqualified deferred compensation liabilities are often treated similarly to assets used to fund general benefits.
Economic Benefit Regime Split-Dollar
In an economic benefit split-dollar arrangement, a credit union owns the insurance policy and is entitled to its full value less any rights it endorses to the executive. Generally the liquidation value of the policy is reported as an asset on the credit union’s balance sheet. Periodic value changes are reported on the income statement.
Loan Regime Split-Dollar
Under loan regime split-dollar, an executive owns the policy and assigns it to the credit union as collateral for repayment of the credit union’s premium advance (plus interest, if applicable). The asset the credit union records on its balance sheet is the loan receivable, not the insurance policy.
Similar to other life insurance assets, the loan value is typically recorded at liquidation value on a credit union’s balance sheet because the loan to the executive is typically nonrecourse. As a nonrecourse asset, only the collateral will back the loan. The difference between the original loan and liquidation value may need to be reported on the income statement as well as periodic value changes.
The loan value may be recorded at its origination value if the executive is required to repay the loan. However, this treatment is subject to certain conditions. For example, the loan must be collectable and the credit union must intend to enforce a personal guarantee.
In all cases, the credit union can only report a value equal to or less than the value of the loan, plus accrued interest, on its balance sheet. The credit union will not be able to report any appreciable value the policy may have in excess of the loan, plus accrued interest.
Last updated September 25, 2017
