Final Rule Summary: Part 709, Involuntary Liquidation of FCUs and Claims Procedures

Prepared by NASCUS Legislative & Regulatory Affairs Department
June 2018

NCUA is amending part 709 of its rules and regulations that establish the procedures that apply to the administration of claims for federally insured credit unions that enter involuntary liquidation. The rule clarifies the requirements for proof of a claim by an employee for pay or benefits (i.e. unpaid wages, sick time or vacation time) and distinguishes  between employees’ claims and claims by credit union executives that constitute a golden parachute.

The final rule may be read in its entirety here. The rule will be effective 30 days after it is published in the Federal Register

This rule applies to both federal credit unions and federally insured state chartered credit unions.

Summary

Section 207(b)(4) of the Federal Credit Union Act authorizes NCUA to promulgate rules governing the recognition or rejection of claims by the liquidating agent and providing for administrative determination of claims and review of such determination. NCUA is also authorized to prohibit “golden parachute payments,” defined to include payments that are contingent on the termination of the party’s employment at the credit union and that are made when the credit union is in troubled financial condition.

With this rule, NCUA is expanding the definition of permissible employment-related claims to include vacation, sick, and severance pay if the payment is supported by an employee handbook or other credit union record and is calculable in accordance with a formula or criteria available to all employees. This expansion represents an exception to the general rule in § 750 providing that all claims for employee welfare benefits are not provable against the liquidating agent.  

In order to be provable in liquidation, claims for wages and salaries, including vacation, severance, and sick leave pay must 1) be provided for in the credit union employee handbook or other written credit union record, 2) be calculable in accordance with an objective formula, and 3) must be available to all employees who meet applicable eligibility requirements, such as minimum length of service. Such payment may also be provable in liquidation if it is required by applicable state or local law.

6/07/18