Proposal on exec comp plans affects 258 FICUs
April 21, 2016 --A proposed rule on executive compensation plans, affecting 258 large federally insured credit unions -- both state and federally chartered -- was issued for comment by the NCUA Board today at its regular monthly meeting in Alexandria, Va.
The proposal – mandated as part of the Dodd-Frank legislation passed in the wake of the 2008 financial crisis – is the credit union part of a rule that is being promulgated jointed by federal financial institution regulators, including NCUA and the FDIC, the Federal Housing Finance Agency (FHFA), the Fed, the OCC, and the SEC. NCUA is the first of the agencies to issue a proposal, for its parts of the rule, largely because the agency's board was meeting before scheduled meetings of other agency ruling bodies, according to an NCUA spokesman.
The agency also pointed out that its board approved issuing the preamble and NCUA’s portion of the proposed rule text for comment. However, the preamble and proposed rule will not be published in the Federal Register until after all of the agencies have acted, and the final version may differ from the version approved for comment by the board.
Comments are due by July 22. The other agencies are expected to issue proposed rules soon, with comments due on approximately the same date.
NCUA stated in a summary that the proposed rule would establish a three-tiered system for covered financial institutions: $250 billion or greater in assets (Level 1), $50 billion up to $250 billion in assets (Level 2), and $1 billion up to $50 billion in assets (Level 3).
However, NCUA added, as of the end of 2015, there were no federally insured credit unions in Level 1, one in Level 2 and 257 in Level 3. Under the proposal, Levels 1, 2 and 3 institutions would need to make available to NCUA sufficient detailed information about the structure of their incentive-based compensation arrangements.
The proposal does not affect the base salary or base benefits for credit unions in Level 3); however, more rigorous requirements, under the proposal, would apply to the single CU in Level 2 (which is Navy Federal Credit Union). CUSOs are not covered by the NCUA portion of the proposed rule. NCUA plans to issue guidance for credit unions on the rule, once it is finalized.
This is the second proposal on this subject, the first being released for comment five years ago. At that time, NASCUS posted comments, urging that the agency consult with state regulators for effective implementation of the rule; increase the “large institution” asset threshold for credit unions to be similar to that for a “large covered retail bank” (and not just those credit unions with more than $10 billion in assets), and; establish a “material incentive-based compensation” threshold for reporting.
In a press briefing following the board meeting, representatives from NCUA and other federal financial institution regulators noted two key differences in the rule proposed today from that proposed in 2011: This proposal includes three levels of institutions (rather than just two in the 2011 proposal, for financials with $1 billion to $50 billion, and those with more than $50 billion); and, the new proposal includes a definition of a “significant risk taker” in this one (which was not included in the proposal five years ago).
During comments, NCUA Vice Chairman Rick Metsger asserted that federally insured, state chartered CUs may find the proposed rule less burdensome than requirements for reporting executive compensation that they face in filing IRS Form 990.
Meanwhile, Board Member Mark McWatters, in a statement, detailed 19 separate points that credit unions may want to consider while formulating their comments.