[Federal Register Volume 76, Number 230 (Wednesday, November 30, 2011)]
[Rules and Regulations]
[Pages 73994-73996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-30313]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 750

RIN 3133-AD73


Golden Parachute and Indemnification Payments; Technical 
Correction

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is finalizing an interim rule to make a technical 
correction to its rule restricting a federally insured credit union 
(FICU) from making golden parachute and indemnification payments to an 
institution-affiliated party (IAP). The amendment corrects an exception 
to the definition of golden parachute payment pertaining to plans 
offered under section 457 of the Internal Revenue Code. The interim 
final rule became effective on June 27, 2011. This rulemaking finalizes 
the interim rule without change.

DATES: Effective on November 30, 2011 NCUA is adopting the interim 
final rule published on June 24, 2011, 76 FR 36979, without change.

FOR FURTHER INFORMATION CONTACT: Pamela Yu, Staff Attorney, Office of

[[Page 73995]]

General Counsel, at 1775 Duke Street, Alexandria, Virginia 22314-3428, 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background
II. Summary of Public Comments
III. Final Rule
IV. Regulatory Procedures

I. Background \1\
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    \1\ President Obama signed the Plain Writing Act of 2010 (Pub. 
L. 111-274) into law on October 13, 2010 ``to improve the 
effectiveness and accountability of federal agencies to the public 
by promoting clear Government communication that the public can 
understand and use.'' This preamble is written to meet plain writing 
objectives.
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A. Why is NCUA adopting this rule?

    On June 24, 2011, NCUA published an interim final rule to correct 
new part 750, which restricts a FICU from making certain golden 
parachute and indemnification payments to an IAP. 76 FR 36979. The 
interim rule became effective June 27, 2011 to correspond with the 
effective date of the new part 750. Public comments were accepted, 
however, until July 24, 2011. NCUA is issuing this rulemaking to 
finalize the interim rule without change.

B. What changes did the interim final rule make?

    The interim final rule corrected an exception to the definition of 
golden parachute payment in Sec.  750.1(e)(2) pertaining to plans 
offered under Sec.  457 of the Internal Revenue Code of 1986, as 
amended (IRC). The technical amendment was necessary to conform the 
regulatory text with the rule's intent, as described in the preamble to 
the final rule. 76 FR 30510 (May 26, 2011).

II. Summary of Public Comments

    NCUA received two comments on the interim final rule: one from a 
trade organization and one from a state credit union league. One 
comment was supportive of the interim final rule, noting that the 
correction is consistent with the intent of the rule to permit post-
employment payments that have reasonable business purposes. The other 
commenter, however, expressed concern about the amendment and suggested 
alternative language for the golden parachute exception at Sec.  
750.1(e)(2). NCUA has reviewed and analyzed both comment letters and, 
as discussed in more detail below, has determined to finalize the 
interim rule without change.

III. Final Rule

    Part 750 establishes a comprehensive framework for golden parachute 
and indemnification payments made by a FICU to an IAP. The intent of 
the rule is to prevent the wrongful or improper disposition of FICU 
assets and inhibit unwarranted rewards to IAPs that can contribute to a 
FICU's troubled condition. The purpose of the rule is not, however, to 
prohibit post-employment payments having reasonable business purposes. 
Accordingly, the rule excludes from the definition of ``golden 
parachute payment'' certain qualified retirement plans such as those 
permitted under Sec.  401 of the IRC. As discussed in the preamble to 
the final rule, in response to comments on the proposed rule, the NCUA 
Board (Board) intended to provide similar treatment to retirement plans 
that are permissible under Sec.  457 of the IRC, which are frequently 
used by credit unions and other tax exempt organizations.
    Plans qualifying as eligible deferred compensation plans under 
Sec.  457(b) of the IRC exhibit characteristics that are similar to the 
more common Sec.  401(k) deferred compensation plans that many 
employers make available to their employees. For example, the amount of 
income that may be deferred under such a plan is equivalent to that 
which may be deferred under Sec.  401, which for 2011 is $16,500. As 
with Sec.  401 plans, moreover, manipulation of the timing and amount 
of the payout are also closely circumscribed by law. For example, these 
plans may not typically provide for an in-service distribution prior to 
retirement. Accordingly, the Board intended for Sec.  457(b) plans to 
be treated like Sec.  401 plans and excluded from the definition of 
golden parachute payment.
    Although the preamble to the final rule made reference to plans 
under subsection (b) and (f) of Sec.  457, it did not provide any 
substantive discussion concerning the differences between them. In 
fact, however, Sec.  457 plans that are permissible under subsection 
(f) are significantly broader and are accorded much greater flexibility 
in terms of structure, coverage, eligibility, participation, vesting, 
etc. Section 457(f) plans are sometimes referred to as ``golden 
handcuffs'' because the contribution rules are generous but there is a 
risk of forfeiture if the individual leaves prior to retirement. These 
plans are highly customizable, and can be designed in a broad variety 
of ways. As such, the intent of the rule has always been that Sec.  
457(f) plans must meet the ``bona fide'' criteria outlined in Sec.  
750.1(c) to qualify as exceptions to the otherwise applicable golden 
parachute restrictions. Because of the limits inherent in Sec.  457(b) 
and the constraints governing plans offered under that subsection, the 
Board intended to specify that only Sec.  457(b) plans are excluded by 
definition from the term ``golden parachute payment''.
    Accordingly, the interim final rule amended Sec.  750.1(e) to 
clarify that plans offered by FICUs under Sec.  457(b) of the IRC are 
specifically excluded from the definition of a prohibited golden 
parachute payment. Although not specifically excluded under Sec.  
750.1(e), certain plans offered under Sec.  457(f) may also be 
permissible if the plan meets the ``bona fide'' exemption criteria 
outlined in Sec.  750.1(c). In other words, all Sec.  457(b) are 
excluded under the rule; however, Sec.  457(f) plans must meet the 
``bona fide'' criteria outlined in Sec.  750.1(c) to qualify as 
exceptions to the golden parachute payment definition.
    One commenter expressed concern about the amendment and suggested 
that the provision should specifically exclude Sec.  457(b) plans and 
any Sec.  457(f) plans that meet the criteria of the ``bona fide 
deferred compensation'' definition. This commenter also suggested 
alternative language for the exception at Sec.  750.1(e)(2), to exclude 
any payment made pursuant to a deferred compensation plan under Sec.  
457(b) ``or under section 457(f) * * * if such payment is a ``bona fide 
deferred compensation'' plan under Sec.  750.1(c).''
    The Board has determined not to adopt this commenter's proposed 
language because the technical correction made by the interim rule 
results in the same effect but in a more clear and concise manner. 
Because Sec.  457(f) plans have the potential for broader flexibility 
than Sec.  457(b) plans, FICUs could exploit this flexibility to make 
abusive arrangements for their senior staff. By contrast, Sec.  457(b) 
plans are, by statutory definition, sufficiently narrow such that 
additional controls are not necessary. Accordingly, the Board 
permanently adopts the technical amendment to the golden parachute 
exception at Sec.  750.1(e) without alteration. The Board emphasizes 
that Sec.  457(f) plans are not prohibited outright under the rule. 
Rather, to be permissible such plans must be ``bona fide.''

IV. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any proposed regulation may 
have on a substantial number of small entities (those under $10 million 
in assets). This final rule provides clarification regarding the 
applicability of one of the exceptions to otherwise applicable 
regulatory restrictions. Accordingly, it will not have a

[[Page 73996]]

significant economic impact on a substantial number of small credit 
unions, and therefore, no regulatory flexibility analysis is required.

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 final 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.

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); 5 CFR part 
1320. For purposes of the PRA, a paperwork burden may take the form of 
either a reporting or a recordkeeping requirement, both referred to as 
information collections. These technical corrections do not impose any 
new paperwork burden.

List of Subjects in 12 CFR Part 750

    Credit unions, Golden parachute payments, Indemnity payments.

    By the National Credit Union Administration Board, this 17th day 
of November, 2011.

Mary F. Rupp,
Secretary of the Board.

    For the reasons discussed above, the National Credit Union 
Administration confirms as final without change, the interim final rule 
amending 12 CFR Part 750 published on June 24, 2011, 76 FR 36979.

[FR Doc. 2011-30313 Filed 11-29-11; 8:45 am]
BILLING CODE 7535-01-P