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The Member Equity Plan - Commonly Asked Questions
The following are commonly asked questions regarding the Member
Equity Plan.
- How Does The Member Equity Plan Work? After meeting reserve
requirements, the Board of Directors may set aside a portion of
earnings for members who have borrowed and saved at Your Credit
Union. Allocations are distributed to the members in the form
of surplus shares. This ensures a strong equity base for the future
of Your Credit Union and also ensures that the members benefit
in relation to their patronage of Credit Union services.
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- What Type of Accounts Qualify For The Member Equity Plan?
Your Credit Union will extend participation in the Member Equity Plan to all individual, organizational, and business borrowing members. All interest paid on personal loans, mortgages, lines of credit and business loans would qualify for the calculation of the member equity allocation. RRIFs would be excluded due to government regulations.
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- How Much Would Each Member Be Allocated?
Members will be allocated a percentage based on the following: interest paid on loans during the year, and interest earned on term deposits. This allocation will be credited in the form of surplus shares to individual Member Equity Plans. Shares will be issued in even increments of $1. The allocation rate will be dependent on the earnings of the Credit Union at year-end and therefore may vary from year to year. The percentage allocated will vary depending on the business conducted by the member throughout the year. See history.
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- Would Allocations Be Made Each Year? The Board of Directors
will decide each year whether earnings warrant an allocation to
the Member Equity Plan.
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- Could A Member Withdraw These Funds, Or Are General Pay Outs
Planned? Generally the surplus shares, which make up the individual
Member Equity Plan, will not be redeemable by any active member.
The Member Equity Plan, like the $5 membership share, would be
your vested interest in the operation of the Your Credit Union.
The Board of Directors may declare a general redemption at their
discretion.
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- Under What Circumstances Can A Member Withdraw The Funds
From the Member Equity Plan?
There are special circumstances under which individual consideration will be given to a complete redemption of the member’s surplus shares in the Member Equity Plan: Death of a member, bankruptcy, or 5 years after closing accounts with Your Credit Union.
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- What Type Of Statements Would Be Issued And How Often? The
Member Equity Plan will be shown on the regular monthly members
statements, and in this way all participating members will receive
notice advising them of the details of the allocation of surplus
shares.
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- Would Member Equity Plans Earn Interest? There will
be no interest paid on Member Equity Plans. However, the Board
of Directors may allocate dividends to the existing surplus shares
that make up Member Equity Plans on an annual basis, depending
on the level of earnings achieved by the Credit Union.
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- Would Funds Credited to the Member Equity Plan be Guaranteed?
The Member Equity Plan consists of surplus shares that represent
true equity, and therefore will not be guaranteed because they
are considered risk capital. It is unlikely that Member Equity
Plans will have to be called upon due to our Credit Union's strong
level of reserves built up from retained earnings, as these reserves
have to be depleted first.
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- What About Income Tax? An allocation to Member Equity
Plan based on interest earned on non-registered savings plans
will be taxable. Therefore, any allocation based on savings and
term deposits will result in the member receiving an Income Tax
slip. An allocation based on the interest paid on a loan will
be taxable only if the loan was for taxable expense, as in the
case of a business loan. It will be the responsibility of the
member to determine whether that allocation will be taxable and
to report it if necessary on their income tax return.
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- Do All Members Participate In The Program? All members
paying or receiving interest in a sufficient amount to warrant
an allocation of $1 or more will be allocated surplus shares in
their Member Equity Plan. However, no member may hold more than
10% of the total number of shares issued by the Credit Union.
Certain accounts may be excluded from participation in the allocation
under special conditions, such as when tendering, special quotations
or when other special pricing arrangements are involved.
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- Why Would the Credit Union Not Charge Less On Loans And/Or
Pay More On Deposits So That No Earnings Would Be Generated?
The Credit Union operates in a constantly changing financial environment
and is affected by interest rate changes and other unpredictable
changes to income and expenses. It is therefore essential that
the Credit Union build in a margin of safety to be able to handle
these fluctuations. The program helps maintain a strong equity
position, allowing the membership to share in the earnings of
the Credit Union. Your Credit Union continues to be a successful
profitable financial organization that provides preferred pricing
on its services to members along with competitive interest rates
to borrowers and depositors. Through the Member Equity Plan, members
will have the opportunity to share in part of the profits of the
Your Credit Union. Your increasing patronage in deposits and loans
increases your participation in the Member Equity Plan.
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