February 25, 1999
Mr. Bernard E. Desjardins
4151 Seventeen Mile Road, Suite A
Sterling Heights, MI 48310
You have written asking for a legal opinion on key man life insurance
and deferred compensation agreements. I have attached several
letters which explain General Counsel's opinion on these types
of plans.
Key man insurance is permissible only as a means of providing
a credit union with protection from the loss of key personnel.
It may not be used as an investment tool. See attached
letter from Richard S. Schulman to Joseph A. Caramadre dated August
1, 1994.
A federal credit union (FCU) may fund a deferred compensation
agreement through the purchase of an annuity that would be an
impermissible investment for an FCU investing on its own account.
See attached letter from Steven R. Bisker to Barbara Chastain
dated July 2, 1987.
Because the annuities and life insurance policies used to fund
the key man insurance and deferred compensation agreements are
impermissible investments for an FCU investing on its own behalf,
it would be impermissible for an FCU to hold onto them once the
deferred compensation agreement is funded or the "key man"
dies. It would seem reasonable for an FCU to hold onto a policy
for a short period of time after the executive retires
if the intent is to transfer the policy to the executive's replacement.
Sincerely,
Sheila A. Albin
Associate General Counsel
GC/MFR:bhs
SSIC 3601
98-1202
Enclosures