Golden Parachute and Indemnification Payments, 47236-47242 [2010-19095]
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47236
Proposed Rules
Federal Register
Vol. 75, No. 150
Thursday, August 5, 2010
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 741 and 750
RIN 3133–AD73
Golden Parachute and Indemnification
Payments
National Credit Union
Administration (NCUA).
ACTION: Proposed rule.
AGENCY:
NCUA proposes to adopt a
rule to prohibit, with some exceptions,
a federally insured credit union (FICU)
from making golden parachute and
indemnification payments to an
institution-affiliated party (IAP). The
proposed rule is intended to help
safeguard the National Credit Union
Share Insurance Fund (NCUSIF) by
preventing the wrongful or improper
disposition of FICU assets and to inhibit
unwarranted rewards to IAPs who may
have contributed to an FICU’s troubled
condition. The proposed rule would
also provide FICUs with greater clarity
on the distinction between legitimate
employee severance payments and
improper golden parachute payments.
DATES: Comments must be received on
or before September 7, 2010.
ADDRESSES: You may submit comments
by any of the following methods (Please
send comments by one method only):
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• NCUA Web site: https://
www.ncua.gov/
RegulationsOpinionsLaws/
proposed_regs/proposed_regs.html.
Follow the instructions for submitting
comments.
• E-mail: Address to
regcomments@ncua.gov. Include ‘‘[Your
name] Comments on ‘‘Golden Parachute
and Indemnification Payments’’ in the email subject line.
• Fax: (703) 518–6319. Use the
subject line described above for e-mail.
• Mail: Address to Mary Rupp,
Secretary of the Board, National Credit
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SUMMARY:
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Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address.
Public Inspection: All public
comments are available on the agency’s
Web site at https://www.ncua.gov/
RegulationsOpinionsLaws/comments as
submitted, except as may not be
possible for technical reasons. Public
comments will not be edited to remove
any identifying or contact information.
Paper copies of comments may be
inspected in NCUA’s law library at 1775
Duke Street, Alexandria, Virginia 22314,
by appointment weekdays between
9 a.m. and 3 p.m. To make an
appointment, call (703) 518–6546 or
send an e-mail to OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT:
Pamela Yu, Staff Attorney, at the above
address, or telephone: (703) 518–6540.
SUPPLEMENTARY INFORMATION:
continuing financial problems facing
many natural person credit unions, the
Board now believes it should implement
the golden parachute and
indemnification provisions of the antifraud legislation for all FICUs.
Furthermore, because the Board wishes
to implement this regulation without
delay, the comment period will be
30 days, as required under the
Administrative Procedure Act, 5 U.S.C.
553(d), rather than a 60-day comment
period NCUA generally provides under
IRPS 87–2, Developing and Reviewing
Government Regulations, 52 FR 35231
(Sept. 18, 1987), as amended by IRPS
03–2, 68 FR 31949 (May 29, 2003). The
provisions of this proposed rule,
substantively identical to the provisions
in the proposed corporate rule, will
prevent the improper disposition of
FICU assets and inhibit unwarranted
rewards that can contribute to an FICU’s
troubled condition.
I. Background
Section 2523 of the Comprehensive
Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990 (Fraud
Act) 1 amended the Federal Credit
Union Act (FCU Act) by adding section
206(t). Public Law No. 101–647, 2523
(1990). Section 206(t) states that ‘‘[t]he
Board may prohibit or limit, by
regulation or order, any golden
parachute payment or indemnification
payment.’’ 12 U.S.C. 1786(t)(1).
This proposal implements section
206(t) by adding a new part 750 to
NCUA’s regulations. Although the
Fraud Act authorized the Board to
prescribe rules in this area, the Board
did not promulgate rules to implement
section 206(t) initially because of a
government-wide moratorium on
rulemaking. Regarding the golden
parachute and indemnification
provisions in the proposed corporate
rule, the Board noted its concern with
‘‘recent problems exposed by the
corporate financial crisis, including
corporate governance problems’’ but
stated it did not intend to apply the
requirements of the proposed corporate
rule to natural person credit unions. 74
FR 65210, 65255 (Dec. 9, 2009). Given
the current economic climate and
II. Summary of the Proposed Rule
NCUA proposes to adopt a rule to
prohibit, with certain exceptions, an
FICU from making golden parachute
and indemnification payments to an
IAP. The purpose of the proposed rule
is to safeguard the NCUSIF by
preventing the wrongful or improper
disposition of FICU assets and to inhibit
rewards to IAPs who may have
contributed to an FICU’s troubled
condition. It is also intended to provide
FICUs with greater clarity on the
distinction between legitimate employee
severance payments and improper
golden parachute payments. The
proposed rule tracks closely to existing
regulations applying to banks.2
This proposal is drafted so as to apply
to all FICUs, including natural person
and corporate credit unions. NCUA
previously issued a proposal to
implement section 206(t) for corporate
credit unions on November 19, 2009, as
part of a comprehensive proposal to
amend part 704, NCUA’s rule governing
corporate credit unions. 74 FR 6520
(Dec. 9, 2009) (to be codified at 12 CFR
704.20).3 This proposed rule, with only
minor differences, for example, in
grammar or simpler word choice, is
substantively the same as the proposed
corporate provisions. A final corporate
rule may be adopted before this
1 The Comprehensive Thrift and Bank Fraud
Prosecution and Taxpayer Recovery Act of 1990 is
title XXV of the Crime Control Act of 1990, S. 3266,
which Congress passed on October 27, 1990 and the
President signed into law on November 29, 1990.
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2 See
12 CFR part 359.
comment period for the corporate proposal
ended March 9, 2010.
3 The
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proposal is finalized and, if so, the
Board may then consider consolidating
the corporate rule’s golden parachute
provisions into a final rule for this
proposal to avoid duplicative sections
on the same subject.
Once finalized, the new part 750 will
apply to all new employment contracts
entered into on or after that date, as well
as to existing contracts that are renewed
or modified in any way after the final
rule’s effective date.
A. Prohibited Golden Parachute
Payments
Proposed part 750 prohibits, with
some exceptions, FICUs that are
insolvent, in conservatorship, rated
CAMEL 4 or 5, or in an otherwise
troubled condition from making golden
parachute payments. Golden parachutes
are payments made to an IAP that are
contingent on the termination of that
person’s employment and received
when the credit union making the
payment is troubled, undercapitalized,
or insolvent. 12 U.S.C. 1786(t)(4).
Recognizing, however, that certain
post-employment payments have
reasonable business purposes, the
proposal includes several ‘‘exceptions’’
to the general prohibition against golden
parachutes to allow FICUs to offer,
consistent with normal business
practice, ‘‘bona fide’’ deferred
compensation plans and legitimate
‘‘nondiscriminatory’’ severance pay
plans. The proposal also includes an
exception to permit a troubled FICU to
hire and agree to pay a golden parachute
to competent management to assist in
bringing a troubled credit union back to
financial health. The proposal would
also permit limited golden parachute
payments, with prior NCUA approval,
in circumstances involving the merger
of a troubled FICU.
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B. Prohibited Indemnification Payments
The proposal also prohibits FICUs,
regardless of their financial condition,
from paying or reimbursing an IAP’s
legal or other professional expenses
incurred in administrative or civil
proceedings instituted by NCUA or the
appropriate state regulatory authority
where the IAP is assessed a civil money
penalty, removed from office or made
subject to a cease and desist order.4
FICUs, however, may purchase
4 Federal credit unions may provide for
indemnification of officers and directors as set forth
at 12 CFR 701.33(c). While proposed § 750.5 is
intended to apply to all FICUS, it does not grant or
enhance any authority state chartered credit unions
may have under state law to provide
indemnification. To the extent this proposed part
750 is perceived to conflict with § 701.33 or any
state law or regulation for state-chartered credit
unions, a FICU must comply with part 750.
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reasonable commercial insurance
policies or fidelity bonds. The proposal
also allows for partial indemnification
in circumstances where there is a formal
and final adjudication or finding that
the IAP has not violated certain laws or
regulations or has not engaged in certain
unsafe or unsound practices or breaches
of fiduciary duty. In these instances,
indemnification would be permitted for
only that portion of the legal or
professional expenses attributable to the
charges for which there has been a
finding in favor of the IAP.
certain qualified pension or retirement
plans under section 401 of the Internal
Revenue Code (IRC); employee benefit
plans that are permissible under
§ 701.19; bona fide deferred
compensation plans; certain death and
disability payments; certain
‘‘nondiscriminatory’’ severance plans;
payments required by state law; and
payments that the Board has determined
permissible under § 750.4. These types
of payments would not be considered
golden parachute payments for purposes
of this rule.
III. Description of Key Provisions
A detailed description of the proposal
rule’s key provisions follows.
Nondiscriminatory
Section 750.1(i) of the proposal
defines ‘‘nondiscriminatory’’ as it relates
to severance pay plans or arrangements,
stating only ‘‘nondiscriminatory’’
severance pay plans or arrangements
qualify as an exception to the
prohibition on golden parachute
payments. To meet the proposed
definition of nondiscriminatory, a
severance pay plan must apply to all
employees of an FICU who meet
reasonable and customary eligibility
requirements applicable to all
employees. NCUA recognizes that
severance plans providing somewhat
more generous benefits to higher
ranking IAPs are typical in the industry.
Thus, the proposed definition permits
severance plans with a modest variance
in benefits based on objective criteria.
Disparities in benefits are only
acceptable if based on objective criteria
like salary, total compensation, length of
service, job grade or classification.
Additionally, the proposed definition
requires any group of employees that is
designated for a different level of
benefits based on objective criteria must
consist of not less than 33% of all
employees.
Section 750.1 Definitions
Proposed § 750.1 contains definitions
applicable to this part. The key
definitions are discussed in detail
below.
Bona Fide Deferred Compensation Plan
or Arrangement
This definition, which appears as
proposed § 750.1(d), is intended to
permit FICUs to offer reasonable
deferred compensation plans that are
typical in executive compensation
packages for credit union executives.
Since credit unions, as tax-exempt
organizations, are not able to offer
equity-based incentive compensation,
deferred compensation plans are an
important tool for credit unions to
attract executive talent in a competitive
market. The proposed definition would
permit FICUs to continue to provide
legitimate deferred compensation plans,
including supplemental retirement
benefits and nonqualified deferred
compensation plans, consistent with
normal business practices.
Golden Parachute Payment
The proposed rule generally prohibits
a FICU from making or agreeing to make
any golden parachute payment.
Proposed § 750.1(f) defines a ‘‘golden
parachute payment’’ as any payment (or
agreement to make any payment) to an
IAP that is contingent on the
termination of that party’s employment
and received when the FICU making the
payment is insolvent, undercapitalized,
in conservatorship, rated CAMEL 4 or 5,
subject to a proceeding to terminate or
suspend its share insurance, or in an
otherwise troubled condition, as defined
in § 701.14(b)(3) and (4).5
The proposed golden parachute
definition would provide exceptions for
5 Corporate credit unions that have been granted
assistance as described in sections 208 or 216 of the
FCU Act would also be considered to be in a
‘‘troubled condition’’ under the proposal.
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Prohibited Indemnification Payment
Under proposed § 750.1(k), a
‘‘prohibited indemnification payment’’ is
any payment or agreement to make any
payment by an FICU to an IAP to pay
or reimburse such person for any civil
money penalty, judgment, or other
liability or legal expense resulting from
any administrative or civil action by
NCUA or the appropriate state
regulatory authority and the IAP is
assessed a civil money penalty, removed
from office or made subject to a cease
and desist order. The proposed
definition would not include any
reasonable payment to purchase
commercial insurance policies or
fidelity bonds. The policy or bond
cannot pay for any penalty or judgment
against an IAP; however, the policy or
bond may cover the potential future cost
of defending an administrative
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proceeding or civil action or pay
restitution to the FICU or its liquidating
agent.
The proposed definition would also
provide an exception for payments
representing a partial indemnification
for legal or professional expenses
specifically attributable to charges for
which there has been a formal and final
adjudication or finding that the IAP has
not violated certain laws or regulations
or has not engaged in certain unsafe or
unsound practices or breaches of
fiduciary duty.
Section 750.4 Permissible Golden
Parachute Payments
In certain, limited circumstances,
NCUA believes payments that otherwise
satisfy the definition of golden
parachute payments should be
permitted. Accordingly, the proposal
includes three major exceptions to the
general prohibition on golden parachute
payments.
First, the proposal includes an
exception to allow an FICU in a
troubled condition to agree to pay a
golden parachute payment in order to
hire new management to help bring a
troubled FICU back to sound financial
health. This exception is intended to
ensure an FICU can attract qualified
senior management with appropriate
expertise to help improve a troubled
FICU’s financial condition. An FICU
must notify and obtain the written
permission of the Board before
employing this exception to make a
golden parachute payment.
Second, the proposed rule includes an
exception to allow FICUs to offer
reasonable severance plan payments in
the context of a merger involving a
troubled credit union.
The merger must be unassisted, that
is, without assistance from, and at no
cost to, NCUA. Reasonable severance
arrangements related to an unassisted
merger must not exceed twelve months’
salary. Additionally, an FICU must
obtain the written consent of the Board
before making the severance payment.
Third, the proposal includes a general
exception to permit golden parachute
payments where the Board determines
such a payment is permissible.
In applying to NCUA for any of the
three exceptions above, the FICU must
demonstrate that the IAP does not bear
any responsibility for the troubled
condition of the FICU. Specifically, an
FICU must demonstrate that it does not
possess, and is not aware of, any
information providing a reasonable
basis to believe that: the IAP has
committed any fraudulent act or
omission, breach of trust or fiduciary
duty, or insider abuse; the IAP is
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substantially responsible for the
insolvency of, the appointment of a
conservator or liquidating agent for, or
the troubled condition of the FICU; or
the IAP has violated or conspired to
violate any applicable federal or state
law or regulation or certain specified
criminal provisions of the United States
Code.
Under the proposal, the Board may
consider the following factors in
determining whether to permit a golden
parachute payment:
• Whether, and to what degree, the
IAP was in a position of managerial or
fiduciary responsibility;
• The length of time the IAP was
affiliated with the FICU, and the degree
to which the proposed payment
represents a reasonable payment for
services rendered over the period of
employment; and
• Any other factors or circumstances
which would indicate that the proposed
payment would be contrary to the intent
of section 206(t) of the FCU Act.
order, or cease and desist order against
the IAP; and
• The IAP agrees in writing to
reimburse the FICU, to the extent not
covered by payments from insurance,
for that portion of the advanced
indemnification payments, if any,
which subsequently becomes a
prohibited indemnification payment.
Section 750.5 Permissible
Indemnification Payments
The proposed rule generally prohibits
indemnification payments for the
benefit of an IAP for any liability or
legal expense in connection with an
administrative or civil enforcement
action that results in a final order or
settlement pursuant to which the IAP is
assessed a civil money penalty, removed
from office, prohibited from
participating in the conduct of the
affairs of an insured credit union, or
required to cease and desist from or take
any affirmative action described in
section 206 of the FCU Act.
Recognizing, however, that there are
circumstances where indemnification
would be appropriate, § 750.5 of the
proposal allows for reasonable
indemnification payments to an IAP
under certain conditions. Specifically,
an FICU may make or agree to make an
indemnification payment to an IAP for
reasonable legal or other professional
expenses incurred in defending an
administrative or civil action brought by
NCUA or the appropriate state regulator
where the FICU’s board of directors
makes a good faith determination, after
due investigation, that:
• The IAP acted in good faith and in
a manner he or she believed to be in the
best interests of the FICU;
• The payment will not materially
adversely affect the FICU’s safety and
soundness;
• The payments do not ultimately
become prohibited indemnification
payments as defined in § 750.1(k), that
is, the administrative action does not
result in a civil money penalty, removal
Regulatory Flexibility Act
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Section 750.7 Applicability in the
Event of Liquidation or Conservatorship
This section clarifies how the
prohibitions and limitations in this part
would apply in the event of a
liquidation or conservatorship. Under
the proposal, the Board’s consent or
approval of a golden parachute payment
under this part will not in any way bind
or obligate any liquidating agent or
conservator for a failed FICU to pay any
claim or obligation under any golden
parachute, severance, indemnification
or other agreement.
IV. Regulatory Procedures
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact a rule may have on a substantial
number of small entities (primarily
those under ten million dollars in
assets). This proposed rule does not
impose any regulatory burden but
prohibits improper golden parachute
and indemnification payments to IAPs
by FICUs in certain circumstances.
Accordingly, it will not have a
significant economic impact on a
substantial number of small credit
unions, and therefore, no regulatory
flexibility analysis is required.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which
an agency by rule creates a new
paperwork burden on regulated entities
or modifies an existing burden. 44
U.S.C. 3507(d). For purposes of the
PRA, a paperwork burden may take the
form of a either a reporting or a
recordkeeping requirement, both
referred to as information collections.
Proposed part 750 would impose new
information collection requirements.
Proposed § 750.6 would require requests
for an FICU to make nondiscriminatory
severance plan payments under
§ 750.1(f)(2)(v) and golden parachute
payments permitted by § 750.4 to be
submitted in writing to NCUA.
In FY 2009, there were 351 problem
FICUs with CAMEL 4 or 5 ratings. Of
those, 156 FICUs had less than $10
million in total assets and 117 FICUs
had less than $100 million in total
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assets. These smaller FICUs are unlikely
to seek NCUA approval to make golden
parachute payments because these
payments are more typically seen in the
executive compensation of larger, more
complex FICUs. Of the remaining 78
larger problem FICUs, NCUA anticipates
no more than 20 percent would seek
NCUA approval to make a golden
parachute payment. Accordingly, NCUA
estimates that 15 FICUs will need to
solicit NCUA approval in advance of
making a severance or golden parachute
payment within the scope of the
proposed rule and that preparing the
request for approval may take four
hours: 15 FICUs × 4 hours = 60 hours.
As required by the PRA, NCUA is
submitting a copy of this proposed
regulation to the Office of Management
and Budget (OMB) for its review and
approval. Persons interested in
submitting comments with respect to
the information collection aspect of the
proposed rule should submit them to
the OMB at the following address:
Office of Information and Regulatory
Affairs, OMB, New Executive Office
Building, Washington, DC 20503;
Attention: NCUA Desk Officer, with a
copy to Mary Rupp, Secretary of the
Board, National Credit Union
Administration, 1775 Duke Street,
Alexandria, Virginia 22314–3428.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
NCUA has determined that this rule
will not affect family well-being within
the meaning of section 654 of the
Treasury and General Government
Appropriations Act, 1999, Public Law
105–277, 112 Stat. 2681 (1998).
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Small Business Regulatory Enforcement
Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub.
L. 104–121) (SBREFA) provides
generally for congressional review of
agency rules. A reporting requirement is
triggered in instances where NCUA
issues a final rule as defined by Section
551 of the APA. 5 U.S.C. 551. NCUA
does not believe this proposed rule is a
‘‘major rule’’ within the meaning of the
relevant sections of SBREFA. NCUA has
submitted the rule to the Office of
Management and Budget for its
determination in that regard.
List of Subjects
12 CFR Part 741
Bank deposit insurance, Credit
unions, Reporting and recordkeeping
requirements.
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12 CFR Part 750
Credit Unions, Golden parachute
payments, Indemnity payments.
By the National Credit Union
Administration Board, this 29th day of July,
2010.
Mary F. Rupp,
Secretary of the Board.
For the reasons discussed above,
NCUA proposes to amend 12 CFR
chapter VII as follows:
PART 741—REQUIREMENTS FOR
INSURANCE
1. The authority citation for part 741
continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790, and 1790d; 31 U.S.C. 3717.
2. Add § 741.223 to read as follows:
§ 741.223 Golden parachute and
indemnification payments.
Any credit union insured pursuant to
Title II of the Act must adhere to the
requirements stated in part 750 of this
chapter.
3. New part 750 is added to read as
follows:
PART 750—GOLDEN PARACHUTE
AND INDEMINIFICATION PAYMENTS
Sec.
750.0 Scope.
750.1 Definitions.
750.2 Golden parachute payments
prohibited.
750.3 Prohibited indemnification payments.
750.4 Permissible golden parachute
payments.
750.5 Permissible indemnification
payments.
750.6 Filing instructions.
750.7 Applicability in the event of
liquidation or conservatorship.
Authority: 12 U.S.C. 1786(t).
§ 750.0
Scope.
(a) This part limits and prohibits, in
certain circumstances, the ability of
federally insured credit unions,
including federally and state chartered
natural person credit unions and
federally and state chartered corporate
credit unions, to enter into contracts to
pay and to make golden parachute and
indemnification payments to
institution-affiliated parties (IAPs).
(b) The limitations on golden
parachute payments apply to troubled
federally insured credit unions that seek
to enter into contracts to pay or to make
golden parachute payments to their
IAPs. A ‘‘golden parachute payment’’ is
generally considered to be any payment
to an IAP which is contingent on the
termination of that person’s
employment and is received when the
federally insured credit union making
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the payment is troubled. The definition
of golden parachute payment does not
include payments pursuant to qualified
retirement plans, nonqualified bona fide
deferred compensation plans,
nondiscriminatory severance pay plans,
other types of common benefits plans,
state statutes and death benefits. Certain
limited exceptions to the golden
parachute payment prohibition are
provided for in cases involving
unassisted mergers and the hiring of
new management to help improve a
troubled federally insured credit union’s
financial condition. A procedure is also
set forth to permit a federally insured
credit union to request permission to
make what would otherwise be a
prohibited golden parachute payment.
(c) The limitations on indemnification
payments apply to all federally insured
credit unions, including state chartered
credit unions, regardless of their
financial health. Generally, this part
prohibits federally insured credit unions
from indemnifying an IAP for that
portion of the costs sustained with
regard to an administrative or civil
enforcement action commenced by
NCUA that results in a final order or
settlement pursuant to which the IAP is
assessed a civil money penalty, removed
from office, prohibited from
participating in the affairs of a federally
insured credit union or required to
cease and desist from or take an
affirmative action described in section
206 of the Federal Credit Union Act, 12
U.S.C. 1786. There are exceptions to this
general prohibition. First, a federally
insured credit union may purchase
commercial insurance to cover these
expenses, except judgments and
penalties. Second, the credit union may
advance legal and other professional
expenses to an IAP directly (except for
judgments and penalties) if its board of
directors makes certain specific findings
and the IAP agrees in writing to
reimburse the credit union if it is
ultimately determined that the IAP
violated a law, regulation or other
fiduciary duty.
§ 750.1
Definitions.
(a) Act means the Federal Credit
Union Act.
(b) Benefit plan means any employee
benefit plan, contract, agreement or
other arrangement subject to the
requirements in § 701.19 of this chapter,
but the term does not include a plan
within the exceptions described in
paragraphs (f)(2) (iii) and (v) of this
section.
(c) Board means the National Credit
Union Administration Board.
(d) Bona fide deferred compensation
plan or arrangement means any plan,
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contract, agreement or other
arrangement where:
(1) An IAP voluntarily elects to defer
all or a portion of the reasonable
compensation, wages or fees paid for
services rendered that otherwise would
have been paid to the IAP at the time
the services were rendered, including a
plan providing for crediting a
reasonable investment return on the
elective deferrals, and the federally
insured credit union either:
(i) Recognizes compensation expense
and accrues a liability for the benefit
payments according to generally
accepted accounting principles (GAAP);
or
(ii) Segregates or otherwise sets aside
assets in a trust that may only be used
to pay plan and other benefits, except
that the assets of the trust may be
available to satisfy claims of the
federally insured credit union’s
creditors in the case of insolvency; or
(2) A federally insured credit union
establishes a nonqualified deferred
compensation or supplemental
retirement plan, other than an elective
deferral plan described in paragraph
(f)(1) of this section:
(i) Primarily for the purpose of
providing benefits for certain IAPs in
excess of the limitations on
contributions and benefits imposed by
sections 415, 401(a)(17), 402(g) or any
other applicable provision of the
Internal Revenue Code of 1986 (26
U.S.C. 415, 401(a)(17), 402(g)); or
(ii) Primarily for the purpose of
providing supplemental retirement
benefits or other deferred compensation
for a select group of directors,
management or highly compensated
employees, excluding severance
payments described in paragraph
(f)(2)(v) of this section and permissible
golden parachute payments described in
§ 750.4; and
(3) In the case of any nonqualified
deferred compensation or supplemental
retirement plans as described in
paragraphs (d)(1) and (2) of this section,
the following requirements apply:
(i) The plan was in effect at least one
year before any of the events described
in paragraph (f)(1)(ii) of this section;
(ii) Any payment made pursuant to
the plan is made in accordance with the
terms of the plan as in effect no later
than one year before any of the events
described in paragraph (f)(1)(ii) of this
section and in accordance with any
amendments to the plan during that one
year period that do not increase the
benefits payable under the plan;
(iii) The IAP has a vested right, as
defined under the applicable plan
document, at the time of termination of
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employment to payments under the
plan;
(iv) Benefits under the plan are
accrued each period only for current or
prior service rendered to the employer,
except that an allowance may be made
for service with a predecessor employer;
(v) Any payment made pursuant to
the plan is not based on any
discretionary acceleration of vesting or
accrual of benefits that occurs at any
time later than one year before any of
the events described in paragraph
(f)(1)(ii) of this section;
(vi) The federally insured credit union
has previously recognized
compensation expense and accrued a
liability for the benefit payments
according to GAAP or segregated or
otherwise set aside assets in a trust that
may only be used to pay plan benefits,
except that the assets of the trust may
be available to satisfy claims of the
credit union’s creditors in the case of
insolvency; and
(vii) Payments pursuant to the plans
must not exceed the accrued liability
computed in accordance with GAAP.
(e) Federally insured credit union
means a federal credit union, state
chartered credit union, or corporate
credit union the member accounts of
which are insured under the Act.
(f) Golden parachute payment. (1) The
term golden parachute payment means
any payment or any agreement to make
any payment in the nature of
compensation by any federally insured
credit union for the benefit of any
current or former IAP pursuant to an
obligation of the credit union that:
(i) Is contingent on, or by its terms is
payable on or after, the termination of
the party’s primary employment or
affiliation with the credit union; and
(ii) Is received on or after, or is made
in contemplation of, any of the
following events:
(A) The insolvency of the federally
insured credit union that is making the
payment; or
(B) The appointment of any
conservator or liquidating agent for the
federally insured credit union; or
(C) A determination by the Board or,
in the case of a state chartered credit
union, the appropriate state supervisory
authority that the federally insured
credit union is in a troubled condition,
as defined in § 701.14(b)(3) and (4) of
this chapter; or
(D) The federally insured credit union
has been assigned:
(1) In the case of a federal credit
union, 4 or 5 CAMEL composite rating
by NCUA; or
(2) In the case of a federally insured
state chartered credit union, an
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Fmt 4702
Sfmt 4702
equivalent 4 or 5 CAMEL composite
rating by the state supervisor; or
(3) In the case of a federally insured
state chartered credit union in a state
that does not use the CAMEL system, a
4 or 5 CAMEL composite rating by
NCUA based on core workpapers
received from the state supervisor; or
(4) In the case of a corporate credit
union, the corporate credit union is
undercapitalized as defined in § 704.4.
(E) The federally insured credit union
is subject to a proceeding to terminate
or suspend its share insurance; and
(iii) Is payable to an IAP whose
employment by or affiliation with a
federally insured credit union is
terminated at a time when the federally
insured credit union by which the IAP
is employed or with which the IAP is
affiliated satisfies any of the conditions
enumerated in paragraphs (f)(1)(ii) (A)
through (E) of this section, or in
contemplation of any of these
conditions.
(2) Exceptions. The term golden
parachute payment does not include:
(i) Any payment made pursuant to a
pension or retirement plan that is
qualified or is intended within a
reasonable period of time to be qualified
under section 401 of the Internal
Revenue Code of 1986, 26 U.S.C. 401; or
(ii) Any payment made pursuant to a
benefit plan as that term is defined in
paragraph (b) of this section; or
(iii) Any payment made pursuant to a
bona fide deferred compensation plan
or arrangement as defined in paragraph
(d) of this section; or
(iv) Any payment made by reason of
death or by reason of termination
caused by the disability of an IAP; or
(v) Any payment made pursuant to a
nondiscriminatory severance pay plan
or arrangement that provides for
payment of severance benefits to all
eligible employees upon involuntary
termination other than for cause,
voluntary resignation, or early
retirement; provided, however, that no
employee will receive any payment that
exceeds the base compensation paid to
the employee during the twelve months,
or a longer period or greater benefit as
the Board will consent to, immediately
preceding termination of employment,
resignation or early retirement, and the
severance pay plan or arrangement must
not or cannot have been adopted or
modified to increase the amount or
scope of severance benefits at a time
when the federally insured credit union
was in a condition specified in
paragraph (f)(1)(ii) of this section or in
contemplation of that condition without
the prior written consent of the Board;
or
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(vi) Any severance or similar payment
required to be made pursuant to a state
statute applicable to all employers
within the appropriate jurisdiction, with
the exception of employers that may be
exempt due to their small number of
employees or other similar criteria; or
(vii) Any other payment the Board
determines to be permissible in
accordance with § 750.4.
(g) Institution-affiliated party (IAP)
means any individual meeting the
criteria in section 206(r) of the Act, 12
U.S.C. 1786(r).
(h) Liability or legal expense means:
(1) Any legal or other professional
fees and expenses incurred in
connection with any claim, proceeding,
or action;
(2) The amount of, and any cost
incurred in connection with, any
settlement of any claim, proceeding, or
action; and
(3) The amount of, and any cost
incurred in connection with, any
judgment or penalty imposed with
respect to any claim, proceeding, or
action.
(i) Nondiscriminatory means that the
plan, contract or arrangement applies to
all employees of a federally insured
credit union who meet reasonable and
customary eligibility requirements
applicable to all employees, such as
minimum length of service
requirements. A nondiscriminatory
plan, contract or arrangement may
provide different benefits based only on
objective criteria, such as salary, total
compensation, length of service, job
grade or classification, applied on a
proportionate basis (with a variance in
severance benefits relating to any
criterion of plus or minus ten percent)
to groups of employees consisting of not
less than 33% of all employees.
(j) Payment means:
(1) Any direct or indirect transfer of
any funds or any asset;
(2) Any forgiveness of any debt or
other obligation;
(3) The conferring of any benefit; and
(4) Any segregation of any funds or
assets, the establishment or funding of
any trust or the purchase of or
arrangement for any letter of credit or
other instrument, for the purpose of
making, or pursuant to any agreement to
make, any payment on or after the date
on which the funds or assets are
segregated, or at the time of or after such
trust is established or letter of credit or
other instrument is made available,
without regard to whether the obligation
to make such payment is contingent on:
(i) The determination, after such date,
of the liability for the payment of such
amount; or
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14:57 Aug 04, 2010
Jkt 220001
(ii) The liquidation, after such date, of
the amount of such payment.
(k) Prohibited indemnification
payment. (1) Prohibited indemnification
payment means any payment or any
agreement or arrangement to make any
payment by any federally insured credit
union for the benefit of any person who
is or was an IAP of the federally insured
credit union, to pay or reimburse such
person for any civil money penalty,
judgment, or other liability or legal
expense resulting from any
administrative or civil action instituted
by NCUA or any appropriate state
regulatory authority, in the case of a
credit union or corporate credit union
chartered by a state, that results in a
final order or settlement pursuant to
which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or
prohibited from participating in the
conduct of the affairs of the federally
insured credit union; or
(iii) Is required to cease and desist
from or take any affirmative action
described in section 206 of the Act (12
U.S.C.1786) with respect to the credit
union.
(2) Exceptions. Prohibited
indemnification payment does not
include any reasonable payment that:
(i) Is used to purchase a commercial
insurance policy or fidelity bond,
provided that the insurance policy or
bond must not be used to pay or
reimburse an IAP for the cost of any
judgment or civil money penalty
assessed against the IAP in an
administrative proceeding or civil
action commenced by NCUA or the
appropriate state supervisory authority,
in the case of a credit union or corporate
credit union chartered by a state, but
may pay any legal or professional
expenses incurred in connection with a
proceeding or action or the amount of
any restitution, to the federally insured
credit union or its conservator or
liquidating agent; or
(ii) Represents partial indemnification
for legal or professional expenses
specifically attributable to particular
charges for which there has been a
formal and final adjudication or finding
in connection with a settlement that the
IAP has not violated certain laws or
regulations or has not engaged in certain
unsafe or unsound practices or breaches
of fiduciary duty, unless the
administrative action or civil
proceeding has resulted in a final
prohibition order against the IAP.
(l) Troubled condition means any
federally insured credit union that
meets the criteria as described in
§ 701.14(b)(3) and (4) of this chapter, or
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Fmt 4702
Sfmt 4702
47241
has been granted assistance described in
sections 208 or 216 of the Act.
§ 750.2 Golden parachute payments
prohibited.
A federally insured credit union must
not make or agree to make any golden
parachute payment, except as permitted
by this part.
§ 750.3 Prohibited indemnification
payments.
A federally insured credit union must
not make or agree to make any
prohibited indemnification payment,
except as permitted by this part.
§ 750.4 Permissible golden parachute
payments.
(a) A federally insured credit union
may agree to make or may make a
golden parachute payment if:
(1) The Board, with written
concurrence of the appropriate state
supervisory authority in the case of a
state chartered credit union or corporate
credit union, determines the payment or
agreement is permissible; or
(2) An agreement is made in order to
hire a person to become an IAP at a time
when the federally insured credit union
satisfies or in an effort to prevent it from
imminently satisfying any of the criteria
in § 750.1(f)(1)(ii), and the Board, with
written concurrence of the appropriate
state supervisory authority in the case of
a state chartered credit union or
corporate credit union, consents in
writing to the amount and terms of the
golden parachute payment. The Board’s
consent will not improve the IAP’s
position in the event of the insolvency
of the credit union since the Board’s
consent cannot bind a liquidating agent
or affect the provability of claims in
liquidation. In the event the credit
union is placed into conservatorship or
liquidation, the conservator or the
liquidating agent, will not be obligated
to pay the promised golden parachute
and the IAP will not be accorded
preferential treatment on the basis of
any prior approval; or
(3) A payment is made pursuant to an
agreement that provides for a reasonable
severance payment, not to exceed
twelve months’ salary, to an IAP in the
event of a merger of the federally
insured credit union; provided,
however, that a federally insured credit
union must obtain the consent of the
Board before making a payment and this
paragraph (a)(3) does not apply to any
merger of a federally insured credit
union resulting from an assisted
transaction described in section 208 of
the Act, 12 U.S.C. 1788, or the federally
insured credit union being placed into
conservatorship or liquidation; and
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(4) A federally insured credit union or
IAP making a request pursuant to
paragraphs (a)(1) through (3) of this
section must demonstrate it does not
possess and is not aware of any
information, evidence, documents or
other materials indicating there is a
reasonable basis to believe, at the time
the payment is proposed to be made,
that:
(i) The IAP has committed any
fraudulent act or omission, breach of
trust or fiduciary duty, or insider abuse
with regard to the federally insured
credit union that has had or is likely to
have a material adverse effect on the
federally insured credit union;
(ii) The IAP is substantially
responsible for the insolvency of, the
appointment of a conservator
liquidating agent for, or the troubled
condition, as defined by § 750.1(l), of
the federally insured credit union;
(iii) The IAP has materially violated
any applicable federal or state law or
regulation that has had or is likely to
have a material effect on the federally
insured credit union; and
(iv) The IAP has violated or conspired
to violate sections 215, 656, 657, 1005,
1006, 1007, 1014, 1032, or 1344 of title
18 of the United States Code, or sections
1341 or 1343 of that title affecting a
federally insured financial institution,
as defined in title 18 of the United
States Code.
(b) In making a determination under
paragraphs (a)(1) through (3) of this
section, the Board may consider:
(1) Whether, and to what degree, the
IAP was in a position of managerial or
fiduciary responsibility;
(2) The length of time the IAP was
affiliated with the federally insured
credit union and the degree to which
the proposed payment represents a
reasonable payment for services
rendered over the period of
employment; and
(3) Any other factors or circumstances
indicating the proposed payment would
be contrary to the intent of section
206(t) of the Act or this part.
wwoods2 on DSK1DXX6B1PROD with PROPOSALS
§ 750.5 Permissible indemnification
payments.
(a) A federally insured credit union
may make or agree to make reasonable
indemnification payments to an IAP
with respect to an administrative
proceeding or civil action initiated by
NCUA or a state regulatory authority if:
(1) The federally insured credit
union’s board of directors, in good faith,
determines in writing after due
investigation and consideration that the
institution-affiliated party acted in good
faith and in a manner he or she believed
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14:57 Aug 04, 2010
Jkt 220001
to be in the best interests of the
institution;
(2) The federally insured credit
union’s board of directors, in good faith,
determines in writing after due
investigation and consideration that the
payment of the expenses will not
materially adversely affect the credit
union’s safety and soundness;
(3) The indemnification payments do
not constitute prohibited
indemnification payments as defined in
§ 750.1(k); and
(4) The IAP agrees in writing to
reimburse the federally insured credit
union, to the extent not covered by
payments from insurance or bonds
purchased pursuant to § 750.1(k)(2)(i),
for that portion of the advanced
indemnification payments which
subsequently become prohibited
indemnification payments, as defined in
§ 750.1(k).
(b) An IAP seeking indemnification
payments must not participate in any
way in the board of director’s discussion
and approval of such payments;
however, the IAP may present his or her
request to the board and respond to any
inquiries from the board concerning his
or her involvement in the circumstances
giving rise to the administrative
proceeding or civil action.
(c) In the event a majority of the
members of the board of directors are
named as respondents in an
administrative proceeding or civil
action and request indemnification, the
remaining members of the board may
authorize independent legal counsel to
review the indemnification request and
provide the remaining members of the
board with a written opinion of counsel
as to whether the conditions in
paragraph (e)(1) of this section have
been met. If independent legal counsel
concludes that the conditions have been
met, the remaining members of the
board of directors may rely on the
opinion in authorizing the requested
indemnification.
(d) In the event all of the members of
the board of directors are named as
respondents in an administrative
proceeding or civil action and request
indemnification, the board will
authorize independent legal counsel to
review the indemnification request and
provide the board with a written
opinion of counsel as to whether the
conditions in paragraph (e)(1) of this
section have been met. If independent
legal counsel concludes the conditions
have been met, the board of directors
may rely on the opinion in authorizing
the requested indemnification.
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Fmt 4702
Sfmt 4702
§ 750.6
Filing instructions.
Requests to make excess
nondiscriminatory severance plan
payments pursuant to § 750.1(f)(2)(v)
and golden parachute payments
permitted by § 750.4 must be submitted
in writing to the Board. The request
must be in letter form and must contain
all relevant factual information as well
as the reasons why such approval
should be granted.
§ 750.7 Applicability in the event of
liquidation or conservatorship.
The provisions of this part, or any
consent or approval granted under the
provisions of this part by the Board, will
not in any way bind any liquidating
agent or conservator for a failed
federally insured credit union and will
not in any way obligate the liquidating
agent or conservator to pay any claim or
obligation pursuant to any golden
parachute, severance, indemnification
or other agreement. Claims for employee
welfare benefits or other benefits that
are contingent, even if otherwise vested,
when a liquidating agent or conservator
is appointed for any federally insured
credit union, including any contingency
for termination of employment, are not
provable claims or actual, direct
compensatory damage claims against
such liquidating agent or conservator.
[FR Doc. 2010–19095 Filed 8–4–10; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2010–0705; Directorate
Identifier 2009–NM–206–AD]
RIN 2120–AA64
Airworthiness Directives; McDonnell
Douglas Corporation Model DC–9–14,
DC–9–15, and DC–9–15F Airplanes;
and Model DC–9–20, DC–9–30, DC–9–
40, and DC–9–50 Series Airplanes
Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
The FAA proposes to
supersede an existing airworthiness
directive (AD) that applies to certain
Model DC–9–14 and DC–9–15 airplanes;
and Model DC–9–20, DC–9–30, DC–9–
40, and DC–9–50 series airplanes. The
existing AD currently requires repetitive
high frequency eddy current inspections
to detect cracking in the vertical radius
SUMMARY:
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Agencies
[Federal Register Volume 75, Number 150 (Thursday, August 5, 2010)]
[Proposed Rules]
[Pages 47236-47242]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-19095]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 75, No. 150 / Thursday, August 5, 2010 /
Proposed Rules
[[Page 47236]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 741 and 750
RIN 3133-AD73
Golden Parachute and Indemnification Payments
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: NCUA proposes to adopt a rule to prohibit, with some
exceptions, a federally insured credit union (FICU) from making golden
parachute and indemnification payments to an institution-affiliated
party (IAP). The proposed rule is intended to help safeguard the
National Credit Union Share Insurance Fund (NCUSIF) by preventing the
wrongful or improper disposition of FICU assets and to inhibit
unwarranted rewards to IAPs who may have contributed to an FICU's
troubled condition. The proposed rule would also provide FICUs with
greater clarity on the distinction between legitimate employee
severance payments and improper golden parachute payments.
DATES: Comments must be received on or before September 7, 2010.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA Web site: https://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the
instructions for submitting comments.
E-mail: Address to regcomments@ncua.gov. Include ``[Your
name] Comments on ``Golden Parachute and Indemnification Payments'' in
the e-mail subject line.
Fax: (703) 518-6319. Use the subject line described above
for e-mail.
Mail: Address to Mary Rupp, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: All public comments are available on the
agency's Web site at https://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical
reasons. Public comments will not be edited to remove any identifying
or contact information. Paper copies of comments may be inspected in
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment,
call (703) 518-6546 or send an e-mail to OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT: Pamela Yu, Staff Attorney, at the
above address, or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
Section 2523 of the Comprehensive Thrift and Bank Fraud Prosecution
and Taxpayer Recovery Act of 1990 (Fraud Act) \1\ amended the Federal
Credit Union Act (FCU Act) by adding section 206(t). Public Law No.
101-647, 2523 (1990). Section 206(t) states that ``[t]he Board may
prohibit or limit, by regulation or order, any golden parachute payment
or indemnification payment.'' 12 U.S.C. 1786(t)(1).
---------------------------------------------------------------------------
\1\ The Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990 is title XXV of the Crime Control Act
of 1990, S. 3266, which Congress passed on October 27, 1990 and the
President signed into law on November 29, 1990.
---------------------------------------------------------------------------
This proposal implements section 206(t) by adding a new part 750 to
NCUA's regulations. Although the Fraud Act authorized the Board to
prescribe rules in this area, the Board did not promulgate rules to
implement section 206(t) initially because of a government-wide
moratorium on rulemaking. Regarding the golden parachute and
indemnification provisions in the proposed corporate rule, the Board
noted its concern with ``recent problems exposed by the corporate
financial crisis, including corporate governance problems'' but stated
it did not intend to apply the requirements of the proposed corporate
rule to natural person credit unions. 74 FR 65210, 65255 (Dec. 9,
2009). Given the current economic climate and continuing financial
problems facing many natural person credit unions, the Board now
believes it should implement the golden parachute and indemnification
provisions of the anti-fraud legislation for all FICUs. Furthermore,
because the Board wishes to implement this regulation without delay,
the comment period will be 30 days, as required under the
Administrative Procedure Act, 5 U.S.C. 553(d), rather than a 60-day
comment period NCUA generally provides under IRPS 87-2, Developing and
Reviewing Government Regulations, 52 FR 35231 (Sept. 18, 1987), as
amended by IRPS 03-2, 68 FR 31949 (May 29, 2003). The provisions of
this proposed rule, substantively identical to the provisions in the
proposed corporate rule, will prevent the improper disposition of FICU
assets and inhibit unwarranted rewards that can contribute to an FICU's
troubled condition.
II. Summary of the Proposed Rule
NCUA proposes to adopt a rule to prohibit, with certain exceptions,
an FICU from making golden parachute and indemnification payments to an
IAP. The purpose of the proposed rule is to safeguard the NCUSIF by
preventing the wrongful or improper disposition of FICU assets and to
inhibit rewards to IAPs who may have contributed to an FICU's troubled
condition. It is also intended to provide FICUs with greater clarity on
the distinction between legitimate employee severance payments and
improper golden parachute payments. The proposed rule tracks closely to
existing regulations applying to banks.\2\
---------------------------------------------------------------------------
\2\ See 12 CFR part 359.
---------------------------------------------------------------------------
This proposal is drafted so as to apply to all FICUs, including
natural person and corporate credit unions. NCUA previously issued a
proposal to implement section 206(t) for corporate credit unions on
November 19, 2009, as part of a comprehensive proposal to amend part
704, NCUA's rule governing corporate credit unions. 74 FR 6520 (Dec. 9,
2009) (to be codified at 12 CFR 704.20).\3\ This proposed rule, with
only minor differences, for example, in grammar or simpler word choice,
is substantively the same as the proposed corporate provisions. A final
corporate rule may be adopted before this
[[Page 47237]]
proposal is finalized and, if so, the Board may then consider
consolidating the corporate rule's golden parachute provisions into a
final rule for this proposal to avoid duplicative sections on the same
subject.
---------------------------------------------------------------------------
\3\ The comment period for the corporate proposal ended March 9,
2010.
---------------------------------------------------------------------------
Once finalized, the new part 750 will apply to all new employment
contracts entered into on or after that date, as well as to existing
contracts that are renewed or modified in any way after the final
rule's effective date.
A. Prohibited Golden Parachute Payments
Proposed part 750 prohibits, with some exceptions, FICUs that are
insolvent, in conservatorship, rated CAMEL 4 or 5, or in an otherwise
troubled condition from making golden parachute payments. Golden
parachutes are payments made to an IAP that are contingent on the
termination of that person's employment and received when the credit
union making the payment is troubled, undercapitalized, or insolvent.
12 U.S.C. 1786(t)(4).
Recognizing, however, that certain post-employment payments have
reasonable business purposes, the proposal includes several
``exceptions'' to the general prohibition against golden parachutes to
allow FICUs to offer, consistent with normal business practice, ``bona
fide'' deferred compensation plans and legitimate ``nondiscriminatory''
severance pay plans. The proposal also includes an exception to permit
a troubled FICU to hire and agree to pay a golden parachute to
competent management to assist in bringing a troubled credit union back
to financial health. The proposal would also permit limited golden
parachute payments, with prior NCUA approval, in circumstances
involving the merger of a troubled FICU.
B. Prohibited Indemnification Payments
The proposal also prohibits FICUs, regardless of their financial
condition, from paying or reimbursing an IAP's legal or other
professional expenses incurred in administrative or civil proceedings
instituted by NCUA or the appropriate state regulatory authority where
the IAP is assessed a civil money penalty, removed from office or made
subject to a cease and desist order.\4\ FICUs, however, may purchase
reasonable commercial insurance policies or fidelity bonds. The
proposal also allows for partial indemnification in circumstances where
there is a formal and final adjudication or finding that the IAP has
not violated certain laws or regulations or has not engaged in certain
unsafe or unsound practices or breaches of fiduciary duty. In these
instances, indemnification would be permitted for only that portion of
the legal or professional expenses attributable to the charges for
which there has been a finding in favor of the IAP.
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\4\ Federal credit unions may provide for indemnification of
officers and directors as set forth at 12 CFR 701.33(c). While
proposed Sec. 750.5 is intended to apply to all FICUS, it does not
grant or enhance any authority state chartered credit unions may
have under state law to provide indemnification. To the extent this
proposed part 750 is perceived to conflict with Sec. 701.33 or any
state law or regulation for state-chartered credit unions, a FICU
must comply with part 750.
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III. Description of Key Provisions
A detailed description of the proposal rule's key provisions
follows.
Section 750.1 Definitions
Proposed Sec. 750.1 contains definitions applicable to this part.
The key definitions are discussed in detail below.
Bona Fide Deferred Compensation Plan or Arrangement
This definition, which appears as proposed Sec. 750.1(d), is
intended to permit FICUs to offer reasonable deferred compensation
plans that are typical in executive compensation packages for credit
union executives. Since credit unions, as tax-exempt organizations, are
not able to offer equity-based incentive compensation, deferred
compensation plans are an important tool for credit unions to attract
executive talent in a competitive market. The proposed definition would
permit FICUs to continue to provide legitimate deferred compensation
plans, including supplemental retirement benefits and nonqualified
deferred compensation plans, consistent with normal business practices.
Golden Parachute Payment
The proposed rule generally prohibits a FICU from making or
agreeing to make any golden parachute payment. Proposed Sec. 750.1(f)
defines a ``golden parachute payment'' as any payment (or agreement to
make any payment) to an IAP that is contingent on the termination of
that party's employment and received when the FICU making the payment
is insolvent, undercapitalized, in conservatorship, rated CAMEL 4 or 5,
subject to a proceeding to terminate or suspend its share insurance, or
in an otherwise troubled condition, as defined in Sec. 701.14(b)(3)
and (4).\5\
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\5\ Corporate credit unions that have been granted assistance as
described in sections 208 or 216 of the FCU Act would also be
considered to be in a ``troubled condition'' under the proposal.
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The proposed golden parachute definition would provide exceptions
for certain qualified pension or retirement plans under section 401 of
the Internal Revenue Code (IRC); employee benefit plans that are
permissible under Sec. 701.19; bona fide deferred compensation plans;
certain death and disability payments; certain ``nondiscriminatory''
severance plans; payments required by state law; and payments that the
Board has determined permissible under Sec. 750.4. These types of
payments would not be considered golden parachute payments for purposes
of this rule.
Nondiscriminatory
Section 750.1(i) of the proposal defines ``nondiscriminatory'' as
it relates to severance pay plans or arrangements, stating only
``nondiscriminatory'' severance pay plans or arrangements qualify as an
exception to the prohibition on golden parachute payments. To meet the
proposed definition of nondiscriminatory, a severance pay plan must
apply to all employees of an FICU who meet reasonable and customary
eligibility requirements applicable to all employees. NCUA recognizes
that severance plans providing somewhat more generous benefits to
higher ranking IAPs are typical in the industry. Thus, the proposed
definition permits severance plans with a modest variance in benefits
based on objective criteria. Disparities in benefits are only
acceptable if based on objective criteria like salary, total
compensation, length of service, job grade or classification.
Additionally, the proposed definition requires any group of employees
that is designated for a different level of benefits based on objective
criteria must consist of not less than 33% of all employees.
Prohibited Indemnification Payment
Under proposed Sec. 750.1(k), a ``prohibited indemnification
payment'' is any payment or agreement to make any payment by an FICU to
an IAP to pay or reimburse such person for any civil money penalty,
judgment, or other liability or legal expense resulting from any
administrative or civil action by NCUA or the appropriate state
regulatory authority and the IAP is assessed a civil money penalty,
removed from office or made subject to a cease and desist order. The
proposed definition would not include any reasonable payment to
purchase commercial insurance policies or fidelity bonds. The policy or
bond cannot pay for any penalty or judgment against an IAP; however,
the policy or bond may cover the potential future cost of defending an
administrative
[[Page 47238]]
proceeding or civil action or pay restitution to the FICU or its
liquidating agent.
The proposed definition would also provide an exception for
payments representing a partial indemnification for legal or
professional expenses specifically attributable to charges for which
there has been a formal and final adjudication or finding that the IAP
has not violated certain laws or regulations or has not engaged in
certain unsafe or unsound practices or breaches of fiduciary duty.
Section 750.4 Permissible Golden Parachute Payments
In certain, limited circumstances, NCUA believes payments that
otherwise satisfy the definition of golden parachute payments should be
permitted. Accordingly, the proposal includes three major exceptions to
the general prohibition on golden parachute payments.
First, the proposal includes an exception to allow an FICU in a
troubled condition to agree to pay a golden parachute payment in order
to hire new management to help bring a troubled FICU back to sound
financial health. This exception is intended to ensure an FICU can
attract qualified senior management with appropriate expertise to help
improve a troubled FICU's financial condition. An FICU must notify and
obtain the written permission of the Board before employing this
exception to make a golden parachute payment.
Second, the proposed rule includes an exception to allow FICUs to
offer reasonable severance plan payments in the context of a merger
involving a troubled credit union.
The merger must be unassisted, that is, without assistance from,
and at no cost to, NCUA. Reasonable severance arrangements related to
an unassisted merger must not exceed twelve months' salary.
Additionally, an FICU must obtain the written consent of the Board
before making the severance payment.
Third, the proposal includes a general exception to permit golden
parachute payments where the Board determines such a payment is
permissible.
In applying to NCUA for any of the three exceptions above, the FICU
must demonstrate that the IAP does not bear any responsibility for the
troubled condition of the FICU. Specifically, an FICU must demonstrate
that it does not possess, and is not aware of, any information
providing a reasonable basis to believe that: the IAP has committed any
fraudulent act or omission, breach of trust or fiduciary duty, or
insider abuse; the IAP is substantially responsible for the insolvency
of, the appointment of a conservator or liquidating agent for, or the
troubled condition of the FICU; or the IAP has violated or conspired to
violate any applicable federal or state law or regulation or certain
specified criminal provisions of the United States Code.
Under the proposal, the Board may consider the following factors in
determining whether to permit a golden parachute payment:
Whether, and to what degree, the IAP was in a position of
managerial or fiduciary responsibility;
The length of time the IAP was affiliated with the FICU,
and the degree to which the proposed payment represents a reasonable
payment for services rendered over the period of employment; and
Any other factors or circumstances which would indicate
that the proposed payment would be contrary to the intent of section
206(t) of the FCU Act.
Section 750.5 Permissible Indemnification Payments
The proposed rule generally prohibits indemnification payments for
the benefit of an IAP for any liability or legal expense in connection
with an administrative or civil enforcement action that results in a
final order or settlement pursuant to which the IAP is assessed a civil
money penalty, removed from office, prohibited from participating in
the conduct of the affairs of an insured credit union, or required to
cease and desist from or take any affirmative action described in
section 206 of the FCU Act. Recognizing, however, that there are
circumstances where indemnification would be appropriate, Sec. 750.5
of the proposal allows for reasonable indemnification payments to an
IAP under certain conditions. Specifically, an FICU may make or agree
to make an indemnification payment to an IAP for reasonable legal or
other professional expenses incurred in defending an administrative or
civil action brought by NCUA or the appropriate state regulator where
the FICU's board of directors makes a good faith determination, after
due investigation, that:
The IAP acted in good faith and in a manner he or she
believed to be in the best interests of the FICU;
The payment will not materially adversely affect the
FICU's safety and soundness;
The payments do not ultimately become prohibited
indemnification payments as defined in Sec. 750.1(k), that is, the
administrative action does not result in a civil money penalty, removal
order, or cease and desist order against the IAP; and
The IAP agrees in writing to reimburse the FICU, to the
extent not covered by payments from insurance, for that portion of the
advanced indemnification payments, if any, which subsequently becomes a
prohibited indemnification payment.
Section 750.7 Applicability in the Event of Liquidation or
Conservatorship
This section clarifies how the prohibitions and limitations in this
part would apply in the event of a liquidation or conservatorship.
Under the proposal, the Board's consent or approval of a golden
parachute payment under this part will not in any way bind or obligate
any liquidating agent or conservator for a failed FICU to pay any claim
or obligation under any golden parachute, severance, indemnification or
other agreement.
IV. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a rule may have on a
substantial number of small entities (primarily those under ten million
dollars in assets). This proposed rule does not impose any regulatory
burden but prohibits improper golden parachute and indemnification
payments to IAPs by FICUs in certain circumstances. Accordingly, it
will not have a significant economic impact on a substantial number of
small credit unions, and therefore, no regulatory flexibility analysis
is required.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency by rule creates a new paperwork burden on regulated
entities or modifies an existing burden. 44 U.S.C. 3507(d). For
purposes of the PRA, a paperwork burden may take the form of a either a
reporting or a recordkeeping requirement, both referred to as
information collections. Proposed part 750 would impose new information
collection requirements. Proposed Sec. 750.6 would require requests
for an FICU to make nondiscriminatory severance plan payments under
Sec. 750.1(f)(2)(v) and golden parachute payments permitted by Sec.
750.4 to be submitted in writing to NCUA.
In FY 2009, there were 351 problem FICUs with CAMEL 4 or 5 ratings.
Of those, 156 FICUs had less than $10 million in total assets and 117
FICUs had less than $100 million in total
[[Page 47239]]
assets. These smaller FICUs are unlikely to seek NCUA approval to make
golden parachute payments because these payments are more typically
seen in the executive compensation of larger, more complex FICUs. Of
the remaining 78 larger problem FICUs, NCUA anticipates no more than 20
percent would seek NCUA approval to make a golden parachute payment.
Accordingly, NCUA estimates that 15 FICUs will need to solicit NCUA
approval in advance of making a severance or golden parachute payment
within the scope of the proposed rule and that preparing the request
for approval may take four hours: 15 FICUs x 4 hours = 60 hours.
As required by the PRA, NCUA is submitting a copy of this proposed
regulation to the Office of Management and Budget (OMB) for its review
and approval. Persons interested in submitting comments with respect to
the information collection aspect of the proposed rule should submit
them to the OMB at the following address: Office of Information and
Regulatory Affairs, OMB, New Executive Office Building, Washington, DC
20503; Attention: NCUA Desk Officer, with a copy to Mary Rupp,
Secretary of the Board, National Credit Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314-3428.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) (SBREFA) provides generally for congressional review
of agency rules. A reporting requirement is triggered in instances
where NCUA issues a final rule as defined by Section 551 of the APA. 5
U.S.C. 551. NCUA does not believe this proposed rule is a ``major
rule'' within the meaning of the relevant sections of SBREFA. NCUA has
submitted the rule to the Office of Management and Budget for its
determination in that regard.
List of Subjects
12 CFR Part 741
Bank deposit insurance, Credit unions, Reporting and recordkeeping
requirements.
12 CFR Part 750
Credit Unions, Golden parachute payments, Indemnity payments.
By the National Credit Union Administration Board, this 29th day
of July, 2010.
Mary F. Rupp,
Secretary of the Board.
For the reasons discussed above, NCUA proposes to amend 12 CFR
chapter VII as follows:
PART 741--REQUIREMENTS FOR INSURANCE
1. The authority citation for part 741 continues to read as
follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
2. Add Sec. 741.223 to read as follows:
Sec. 741.223 Golden parachute and indemnification payments.
Any credit union insured pursuant to Title II of the Act must
adhere to the requirements stated in part 750 of this chapter.
3. New part 750 is added to read as follows:
PART 750--GOLDEN PARACHUTE AND INDEMINIFICATION PAYMENTS
Sec.
750.0 Scope.
750.1 Definitions.
750.2 Golden parachute payments prohibited.
750.3 Prohibited indemnification payments.
750.4 Permissible golden parachute payments.
750.5 Permissible indemnification payments.
750.6 Filing instructions.
750.7 Applicability in the event of liquidation or conservatorship.
Authority: 12 U.S.C. 1786(t).
Sec. 750.0 Scope.
(a) This part limits and prohibits, in certain circumstances, the
ability of federally insured credit unions, including federally and
state chartered natural person credit unions and federally and state
chartered corporate credit unions, to enter into contracts to pay and
to make golden parachute and indemnification payments to institution-
affiliated parties (IAPs).
(b) The limitations on golden parachute payments apply to troubled
federally insured credit unions that seek to enter into contracts to
pay or to make golden parachute payments to their IAPs. A ``golden
parachute payment'' is generally considered to be any payment to an IAP
which is contingent on the termination of that person's employment and
is received when the federally insured credit union making the payment
is troubled. The definition of golden parachute payment does not
include payments pursuant to qualified retirement plans, nonqualified
bona fide deferred compensation plans, nondiscriminatory severance pay
plans, other types of common benefits plans, state statutes and death
benefits. Certain limited exceptions to the golden parachute payment
prohibition are provided for in cases involving unassisted mergers and
the hiring of new management to help improve a troubled federally
insured credit union's financial condition. A procedure is also set
forth to permit a federally insured credit union to request permission
to make what would otherwise be a prohibited golden parachute payment.
(c) The limitations on indemnification payments apply to all
federally insured credit unions, including state chartered credit
unions, regardless of their financial health. Generally, this part
prohibits federally insured credit unions from indemnifying an IAP for
that portion of the costs sustained with regard to an administrative or
civil enforcement action commenced by NCUA that results in a final
order or settlement pursuant to which the IAP is assessed a civil money
penalty, removed from office, prohibited from participating in the
affairs of a federally insured credit union or required to cease and
desist from or take an affirmative action described in section 206 of
the Federal Credit Union Act, 12 U.S.C. 1786. There are exceptions to
this general prohibition. First, a federally insured credit union may
purchase commercial insurance to cover these expenses, except judgments
and penalties. Second, the credit union may advance legal and other
professional expenses to an IAP directly (except for judgments and
penalties) if its board of directors makes certain specific findings
and the IAP agrees in writing to reimburse the credit union if it is
ultimately determined that the IAP violated a law, regulation or other
fiduciary duty.
Sec. 750.1 Definitions.
(a) Act means the Federal Credit Union Act.
(b) Benefit plan means any employee benefit plan, contract,
agreement or other arrangement subject to the requirements in Sec.
701.19 of this chapter, but the term does not include a plan within the
exceptions described in paragraphs (f)(2) (iii) and (v) of this
section.
(c) Board means the National Credit Union Administration Board.
(d) Bona fide deferred compensation plan or arrangement means any
plan,
[[Page 47240]]
contract, agreement or other arrangement where:
(1) An IAP voluntarily elects to defer all or a portion of the
reasonable compensation, wages or fees paid for services rendered that
otherwise would have been paid to the IAP at the time the services were
rendered, including a plan providing for crediting a reasonable
investment return on the elective deferrals, and the federally insured
credit union either:
(i) Recognizes compensation expense and accrues a liability for the
benefit payments according to generally accepted accounting principles
(GAAP); or
(ii) Segregates or otherwise sets aside assets in a trust that may
only be used to pay plan and other benefits, except that the assets of
the trust may be available to satisfy claims of the federally insured
credit union's creditors in the case of insolvency; or
(2) A federally insured credit union establishes a nonqualified
deferred compensation or supplemental retirement plan, other than an
elective deferral plan described in paragraph (f)(1) of this section:
(i) Primarily for the purpose of providing benefits for certain
IAPs in excess of the limitations on contributions and benefits imposed
by sections 415, 401(a)(17), 402(g) or any other applicable provision
of the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17),
402(g)); or
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
directors, management or highly compensated employees, excluding
severance payments described in paragraph (f)(2)(v) of this section and
permissible golden parachute payments described in Sec. 750.4; and
(3) In the case of any nonqualified deferred compensation or
supplemental retirement plans as described in paragraphs (d)(1) and (2)
of this section, the following requirements apply:
(i) The plan was in effect at least one year before any of the
events described in paragraph (f)(1)(ii) of this section;
(ii) Any payment made pursuant to the plan is made in accordance
with the terms of the plan as in effect no later than one year before
any of the events described in paragraph (f)(1)(ii) of this section and
in accordance with any amendments to the plan during that one year
period that do not increase the benefits payable under the plan;
(iii) The IAP has a vested right, as defined under the applicable
plan document, at the time of termination of employment to payments
under the plan;
(iv) Benefits under the plan are accrued each period only for
current or prior service rendered to the employer, except that an
allowance may be made for service with a predecessor employer;
(v) Any payment made pursuant to the plan is not based on any
discretionary acceleration of vesting or accrual of benefits that
occurs at any time later than one year before any of the events
described in paragraph (f)(1)(ii) of this section;
(vi) The federally insured credit union has previously recognized
compensation expense and accrued a liability for the benefit payments
according to GAAP or segregated or otherwise set aside assets in a
trust that may only be used to pay plan benefits, except that the
assets of the trust may be available to satisfy claims of the credit
union's creditors in the case of insolvency; and
(vii) Payments pursuant to the plans must not exceed the accrued
liability computed in accordance with GAAP.
(e) Federally insured credit union means a federal credit union,
state chartered credit union, or corporate credit union the member
accounts of which are insured under the Act.
(f) Golden parachute payment. (1) The term golden parachute payment
means any payment or any agreement to make any payment in the nature of
compensation by any federally insured credit union for the benefit of
any current or former IAP pursuant to an obligation of the credit union
that:
(i) Is contingent on, or by its terms is payable on or after, the
termination of the party's primary employment or affiliation with the
credit union; and
(ii) Is received on or after, or is made in contemplation of, any
of the following events:
(A) The insolvency of the federally insured credit union that is
making the payment; or
(B) The appointment of any conservator or liquidating agent for the
federally insured credit union; or
(C) A determination by the Board or, in the case of a state
chartered credit union, the appropriate state supervisory authority
that the federally insured credit union is in a troubled condition, as
defined in Sec. 701.14(b)(3) and (4) of this chapter; or
(D) The federally insured credit union has been assigned:
(1) In the case of a federal credit union, 4 or 5 CAMEL composite
rating by NCUA; or
(2) In the case of a federally insured state chartered credit
union, an equivalent 4 or 5 CAMEL composite rating by the state
supervisor; or
(3) In the case of a federally insured state chartered credit union
in a state that does not use the CAMEL system, a 4 or 5 CAMEL composite
rating by NCUA based on core workpapers received from the state
supervisor; or
(4) In the case of a corporate credit union, the corporate credit
union is undercapitalized as defined in Sec. 704.4.
(E) The federally insured credit union is subject to a proceeding
to terminate or suspend its share insurance; and
(iii) Is payable to an IAP whose employment by or affiliation with
a federally insured credit union is terminated at a time when the
federally insured credit union by which the IAP is employed or with
which the IAP is affiliated satisfies any of the conditions enumerated
in paragraphs (f)(1)(ii) (A) through (E) of this section, or in
contemplation of any of these conditions.
(2) Exceptions. The term golden parachute payment does not include:
(i) Any payment made pursuant to a pension or retirement plan that
is qualified or is intended within a reasonable period of time to be
qualified under section 401 of the Internal Revenue Code of 1986, 26
U.S.C. 401; or
(ii) Any payment made pursuant to a benefit plan as that term is
defined in paragraph (b) of this section; or
(iii) Any payment made pursuant to a bona fide deferred
compensation plan or arrangement as defined in paragraph (d) of this
section; or
(iv) Any payment made by reason of death or by reason of
termination caused by the disability of an IAP; or
(v) Any payment made pursuant to a nondiscriminatory severance pay
plan or arrangement that provides for payment of severance benefits to
all eligible employees upon involuntary termination other than for
cause, voluntary resignation, or early retirement; provided, however,
that no employee will receive any payment that exceeds the base
compensation paid to the employee during the twelve months, or a longer
period or greater benefit as the Board will consent to, immediately
preceding termination of employment, resignation or early retirement,
and the severance pay plan or arrangement must not or cannot have been
adopted or modified to increase the amount or scope of severance
benefits at a time when the federally insured credit union was in a
condition specified in paragraph (f)(1)(ii) of this section or in
contemplation of that condition without the prior written consent of
the Board; or
[[Page 47241]]
(vi) Any severance or similar payment required to be made pursuant
to a state statute applicable to all employers within the appropriate
jurisdiction, with the exception of employers that may be exempt due to
their small number of employees or other similar criteria; or
(vii) Any other payment the Board determines to be permissible in
accordance with Sec. 750.4.
(g) Institution-affiliated party (IAP) means any individual meeting
the criteria in section 206(r) of the Act, 12 U.S.C. 1786(r).
(h) Liability or legal expense means:
(1) Any legal or other professional fees and expenses incurred in
connection with any claim, proceeding, or action;
(2) The amount of, and any cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
(i) Nondiscriminatory means that the plan, contract or arrangement
applies to all employees of a federally insured credit union who meet
reasonable and customary eligibility requirements applicable to all
employees, such as minimum length of service requirements. A
nondiscriminatory plan, contract or arrangement may provide different
benefits based only on objective criteria, such as salary, total
compensation, length of service, job grade or classification, applied
on a proportionate basis (with a variance in severance benefits
relating to any criterion of plus or minus ten percent) to groups of
employees consisting of not less than 33% of all employees.
(j) Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter
of credit or other instrument, for the purpose of making, or pursuant
to any agreement to make, any payment on or after the date on which the
funds or assets are segregated, or at the time of or after such trust
is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on:
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
(k) Prohibited indemnification payment. (1) Prohibited
indemnification payment means any payment or any agreement or
arrangement to make any payment by any federally insured credit union
for the benefit of any person who is or was an IAP of the federally
insured credit union, to pay or reimburse such person for any civil
money penalty, judgment, or other liability or legal expense resulting
from any administrative or civil action instituted by NCUA or any
appropriate state regulatory authority, in the case of a credit union
or corporate credit union chartered by a state, that results in a final
order or settlement pursuant to which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the federally insured credit union; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 206 of the Act (12 U.S.C.1786) with respect
to the credit union.
(2) Exceptions. Prohibited indemnification payment does not include
any reasonable payment that:
(i) Is used to purchase a commercial insurance policy or fidelity
bond, provided that the insurance policy or bond must not be used to
pay or reimburse an IAP for the cost of any judgment or civil money
penalty assessed against the IAP in an administrative proceeding or
civil action commenced by NCUA or the appropriate state supervisory
authority, in the case of a credit union or corporate credit union
chartered by a state, but may pay any legal or professional expenses
incurred in connection with a proceeding or action or the amount of any
restitution, to the federally insured credit union or its conservator
or liquidating agent; or
(ii) Represents partial indemnification for legal or professional
expenses specifically attributable to particular charges for which
there has been a formal and final adjudication or finding in connection
with a settlement that the IAP has not violated certain laws or
regulations or has not engaged in certain unsafe or unsound practices
or breaches of fiduciary duty, unless the administrative action or
civil proceeding has resulted in a final prohibition order against the
IAP.
(l) Troubled condition means any federally insured credit union
that meets the criteria as described in Sec. 701.14(b)(3) and (4) of
this chapter, or has been granted assistance described in sections 208
or 216 of the Act.
Sec. 750.2 Golden parachute payments prohibited.
A federally insured credit union must not make or agree to make any
golden parachute payment, except as permitted by this part.
Sec. 750.3 Prohibited indemnification payments.
A federally insured credit union must not make or agree to make any
prohibited indemnification payment, except as permitted by this part.
Sec. 750.4 Permissible golden parachute payments.
(a) A federally insured credit union may agree to make or may make
a golden parachute payment if:
(1) The Board, with written concurrence of the appropriate state
supervisory authority in the case of a state chartered credit union or
corporate credit union, determines the payment or agreement is
permissible; or
(2) An agreement is made in order to hire a person to become an IAP
at a time when the federally insured credit union satisfies or in an
effort to prevent it from imminently satisfying any of the criteria in
Sec. 750.1(f)(1)(ii), and the Board, with written concurrence of the
appropriate state supervisory authority in the case of a state
chartered credit union or corporate credit union, consents in writing
to the amount and terms of the golden parachute payment. The Board's
consent will not improve the IAP's position in the event of the
insolvency of the credit union since the Board's consent cannot bind a
liquidating agent or affect the provability of claims in liquidation.
In the event the credit union is placed into conservatorship or
liquidation, the conservator or the liquidating agent, will not be
obligated to pay the promised golden parachute and the IAP will not be
accorded preferential treatment on the basis of any prior approval; or
(3) A payment is made pursuant to an agreement that provides for a
reasonable severance payment, not to exceed twelve months' salary, to
an IAP in the event of a merger of the federally insured credit union;
provided, however, that a federally insured credit union must obtain
the consent of the Board before making a payment and this paragraph
(a)(3) does not apply to any merger of a federally insured credit union
resulting from an assisted transaction described in section 208 of the
Act, 12 U.S.C. 1788, or the federally insured credit union being placed
into conservatorship or liquidation; and
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(4) A federally insured credit union or IAP making a request
pursuant to paragraphs (a)(1) through (3) of this section must
demonstrate it does not possess and is not aware of any information,
evidence, documents or other materials indicating there is a reasonable
basis to believe, at the time the payment is proposed to be made, that:
(i) The IAP has committed any fraudulent act or omission, breach of
trust or fiduciary duty, or insider abuse with regard to the federally
insured credit union that has had or is likely to have a material
adverse effect on the federally insured credit union;
(ii) The IAP is substantially responsible for the insolvency of,
the appointment of a conservator liquidating agent for, or the troubled
condition, as defined by Sec. 750.1(l), of the federally insured
credit union;
(iii) The IAP has materially violated any applicable federal or
state law or regulation that has had or is likely to have a material
effect on the federally insured credit union; and
(iv) The IAP has violated or conspired to violate sections 215,
656, 657, 1005, 1006, 1007, 1014, 1032, or 1344 of title 18 of the
United States Code, or sections 1341 or 1343 of that title affecting a
federally insured financial institution, as defined in title 18 of the
United States Code.
(b) In making a determination under paragraphs (a)(1) through (3)
of this section, the Board may consider:
(1) Whether, and to what degree, the IAP was in a position of
managerial or fiduciary responsibility;
(2) The length of time the IAP was affiliated with the federally
insured credit union and the degree to which the proposed payment
represents a reasonable payment for services rendered over the period
of employment; and
(3) Any other factors or circumstances indicating the proposed
payment would be contrary to the intent of section 206(t) of the Act or
this part.
Sec. 750.5 Permissible indemnification payments.
(a) A federally insured credit union may make or agree to make
reasonable indemnification payments to an IAP with respect to an
administrative proceeding or civil action initiated by NCUA or a state
regulatory authority if:
(1) The federally insured credit union's board of directors, in
good faith, determines in writing after due investigation and
consideration that the institution-affiliated party acted in good faith
and in a manner he or she believed to be in the best interests of the
institution;
(2) The federally insured credit union's board of directors, in
good faith, determines in writing after due investigation and
consideration that the payment of the expenses will not materially
adversely affect the credit union's safety and soundness;
(3) The indemnification payments do not constitute prohibited
indemnification payments as defined in Sec. 750.1(k); and
(4) The IAP agrees in writing to reimburse the federally insured
credit union, to the extent not covered by payments from insurance or
bonds purchased pursuant to Sec. 750.1(k)(2)(i), for that portion of
the advanced indemnification payments which subsequently become
prohibited indemnification payments, as defined in Sec. 750.1(k).
(b) An IAP seeking indemnification payments must not participate in
any way in the board of director's discussion and approval of such
payments; however, the IAP may present his or her request to the board
and respond to any inquiries from the board concerning his or her
involvement in the circumstances giving rise to the administrative
proceeding or civil action.
(c) In the event a majority of the members of the board of
directors are named as respondents in an administrative proceeding or
civil action and request indemnification, the remaining members of the
board may authorize independent legal counsel to review the
indemnification request and provide the remaining members of the board
with a written opinion of counsel as to whether the conditions in
paragraph (e)(1) of this section have been met. If independent legal
counsel concludes that the conditions have been met, the remaining
members of the board of directors may rely on the opinion in
authorizing the requested indemnification.
(d) In the event all of the members of the board of directors are
named as respondents in an administrative proceeding or civil action
and request indemnification, the board will authorize independent legal
counsel to review the indemnification request and provide the board
with a written opinion of counsel as to whether the conditions in
paragraph (e)(1) of this section have been met. If independent legal
counsel concludes the conditions have been met, the board of directors
may rely on the opinion in authorizing the requested indemnification.
Sec. 750.6 Filing instructions.
Requests to make excess nondiscriminatory severance plan payments
pursuant to Sec. 750.1(f)(2)(v) and golden parachute payments
permitted by Sec. 750.4 must be submitted in writing to the Board. The
request must be in letter form and must contain all relevant factual
information as well as the reasons why such approval should be granted.
Sec. 750.7 Applicability in the event of liquidation or
conservatorship.
The provisions of this part, or any consent or approval granted
under the provisions of this part by the Board, will not in any way
bind any liquidating agent or conservator for a failed federally
insured credit union and will not in any way obligate the liquidating
agent or conservator to pay any claim or obligation pursuant to any
golden parachute, severance, indemnification or other agreement. Claims
for employee welfare benefits or other benefits that are contingent,
even if otherwise vested, when a liquidating agent or conservator is
appointed for any federally insured credit union, including any
contingency for termination of employment, are not provable claims or
actual, direct compensatory damage claims against such liquidating
agent or conservator.
[FR Doc. 2010-19095 Filed 8-4-10; 8:45 am]
BILLING CODE 7535-01-P