Golden Parachute Rule Curtails Payouts at Troubled CUs

The NCUA has approved the final golden parachute and indemnification rule, which was drafted to guard against unwarranted disbursements to individuals whose actions may have contributed to a credit union’s distressed financial condition.

The rule prevents federally insured credit unions from providing lucrative rewards to departing executives in certain situations. The “golden parachute” provisions would apply to troubled credit unions rated CAMEL 4 or 5, or affected by insolvency or a conservatorship. The rule also differentiates between legitimate severance payments or bona fide deferred compensation arrangements and improper golden parachutes.

The rule also establishes limits on a federally insured credit union’s ability to provide indemnification. The new rule will only apply in conjunction with administrative enforcement actions brought by the agency (or by a state regulator in the case of a state-chartered institution), such as the assessment of a civil monetary penalty, the imposition of a cease-and-desist order, or removal from office.

This rule has exemptions that apply to certain types of employee benefits, severance agreements and current employment contracts. The rule also provides for a method, under certain circumstances, in which a credit union may make an advance indemnification payment.

As adopted, the final amendments also consolidate in one place those provisions that overlapped with the corporate credit union rule (Part 704.20). Upon the effective date, the final amendments to the new golden parachute rule delete the duplicative sections in the corporate credit union rule.

The rule changes become effective 30 days following publication in the Federal Register.


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Posted in Compliance News.