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MEMBER EQUITY FAQ
The Member Equity Plan - Commonly Asked Questions
The following are commonly asked questions regarding the Member Equity Plan. Click to have each answered.
- How does the Member Equity Plan work?
- What type of accounts qualify for the Member Equity Plan?
- How much would each Member be allocated?
- Would allocations be made each year?
- Could a Member withdraw these funds, or are general pay outs planned?
- Under what circumstances can a Member withdraw the funds from the Member Equity Plan?
- What type of statements would be issued and how often?
- Would Member Equity Plans earn interest?
- Would funds credited to the Member Equity Plan be guaranteed?
- What about income tax?
- Do all Members participate in the program?
- Why would the Credit Union not charge less on loans and/or pay more on deposits so that no earnings would be generated?
1. 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 Dauphin Plains Credit Union. Allocations are distributed to the members in the form of surplus shares. This ensures a strong equity base for the future of Dauphin Plains Credit Union and also ensures that the members benefit in relation to their patronage of Credit Union services.
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2. What Type of Accounts Qualify For The Member Equity Plan?
Dauphin Plains Credit Union will extend participation in the Member Equity Plan to all individual, organizational, and business borrowing and savings plan members. All interest paid on personal loans, mortgages, lines of credit and business loans would qualify for the calculation of the member equity allocation.
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3. How Much Would Each Member Be Allocated?
Members will be allocated a percentage based on the following: interest paid on loans during the year, interest earned on savings accounts and term deposits. This allocation will be credited in the form of surplus shares to individual Member Equity Plans. Shares will be issued on all accounts where the allocation exceeds one dollar. 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.
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4. 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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5. 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 Dauphin Plains Credit Union. The Board of Directors may declare a general redemption at their discretion.
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6. 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 dissolution of a company or organization, upon moving and establishing permanent residence outside the province of Manitoba and closing accounts with Dauphin Plains Credit Union. Members that close out all accounts at the Credit Union and apply to redeem the surplus shares for reasons other than those outlined above would be considered by the Board of Directors annually.
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7. What Type Of Statements Would Be Issued And How Often?
The Member Equity Plan will be shown on the regular monthly member's statements. In this way all-participating members will receive notice advising them of the details of the allocation of surplus shares.
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8. 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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9. 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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10. 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. In the case of registered deposits, surplus share allocations are taxable when the funds are removed from the registered account. 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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11. 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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12. 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. Dauphin Plains 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 Dauphin Plains Credit Union. Your increasing patronage in deposits and loans increases your participation in the Member Equity Plan.
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