NPCs are limited to the types of investments to those backed by the full baith and credit of the United States Government (see VHA Handbook 1200.17, 13. NPC Financial Management, b. Investment Practices). Therefore, NPCs should be aware of the Federal Deposit Insurance Corporation insured limits for each depositor per insured bank. These limits are currently set at $250,000 per bank.
NAVREF regularly reviews brokerage firm programs, but to date the following is only two have qualified for management of NPC funds, which must be backed by the full faith and credit of the US Government at all times.
Merrill Lynch Endowment Management Account
Merrill Lynch offers a money management program that meets the requirement that all NPC funds must be backed by the full faith and credit of the US Government at all times.
Merrill Lynch Endowment Management Account used with the Insured Savings Account
The ML account meets the full faith and credit requirement by constantly sweeping funds into designated regional banks, limiting the amount in each bank to $250,000 through the end of 2013. This mechanism invokes Federal Deposit Insurance Corporation (FDIC) protection while providing the convenience and interest income of a money market account. To structure its ISA, ML uses 35 regional banks. As a result, an ML ISA account can accommodate up to $8 million through the end of 2013. Funds in an ML account in excess of these amounts must be invested in CDs or Treasuries. If an NPC maintains a separate account with one of the designated regional banks, it should block funds from going into that bank to avoid exceeding the FDIC limit (currently at $250,000 until the end of 2013). For a modest fee, the ML account offers a full range of services including checking, debit cards with reward plans, electronic transfers, consolidated statements, etc.
All funds administered by an NPC must be held in instruments backed by the full faith and credit of the US government at all times. This effectively limits NPCs to instruments insured by the FDIC or the National Credit Union Administration (NCUA) such as insured bank/credit union accounts and bank/credit union CDs as well as Treasury bonds and notes. All accounts held by one bank contribute to the FDIC limit so NPCs either must spread their funds among banks or must establish a brokerage account that incorporates a mechanism for providing FDIC coverage such as the ML account named above. Securities Investor Protection Corporation (SIPC) coverage provided by brokerage firms to cover money market accounts and investments is not adequate because it is not backed by the full faith and credit of the US government. Also, NPCs may not invest in mutual funds, even those comprised of government securities.
NPCs WITH MERRILL LYNCH ACCOUNTS SHOULD BE AWARE OF LIMITATION ON DEPOSITORY INSTITUTIONS
NAVREF recommends that NPCs instruct their financial consultants (FCs) not to purchase CDs from Bank of America.
In order to stay below the FDIC limit for a single institution, larger NPCs also should not purchase CDs from other banks on the list of ISA depository banks used by Merrill Lynch offices in the region. A list of banks used by Merrill Lynch for ISAs is available from your FC. NAVREF recommends that NPCs discuss this with their FCs and follow up with a letter to be maintained in the NPC's Merrill Lynch file detailing the request that the FC not purchase CDs from Bank of America, the Merrill Lynch banks or from institutions used for ISA accounts. Please contact your Merrill Lynch FC if you have questions or need additional information.
NPCs that use Merrill Lynch brokerage accounts to manage their funds should not purchase CDs from Bank of America Corporation.
Raymond James Bank Deposit Program
In September 2009, the financial management firm Raymond James launched the Raymond James Bank Deposit Program (RJBDP). Like the Merrill Lynch Insured Savings Account (ISA), available cash will be deposited into interest-bearing accounts at one or more banks. If the account holder’s cash balance exceeds the FDIC limit ($250,000 through the end of 2013), the excess cash will be deposited in the next bank(s) on the priority list. This will provide FDIC coverage for up to $2.5 million per account holder.
Through careful review of RJ materials describing the RJBDP and discussion with RJ representatives, NAVREF has verified that the RJDBP meets the VA requirement that NPC funds must be held in instruments backed by the full faith and credit of the US government. NPCs that wish to use a brokerage firm to manage funds, including purchasing CDs and Treasuries, will have an alternative to Merrill Lynch. Each NPC should evaluate for itself the brokerage services offered by RJ and its strength in the current economic environment.