83 FR 4450 - Involuntary Liquidation of Federal Credit Unions and Claims Procedures

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 83, Issue 21 (January 31, 2018)

The NCUA Board (Board) proposes to amend part 709 of its rules to update and clarify the procedures that apply to claims administration for federally insured credit unions that enter involuntary liquidation. Specifically, the proposal would amend the current rule's payout priority provision by specifying the conditions that claims in the nature of severance must meet to be allowed as provable claims.

[Federal Register Volume 83, Number 21 (Wednesday, January 31, 2018)]
[Proposed Rules]
[Pages 4450-4452]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-01884]


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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.

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Federal Register / Vol. 83, No. 21 / Wednesday, January 31, 2018 / 
Proposed Rules

[[Page 4450]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 709

RIN 3133-AE82


Involuntary Liquidation of Federal Credit Unions and Claims 
Procedures

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The NCUA Board (Board) proposes to amend part 709 of its rules 
to update and clarify the procedures that apply to claims 
administration for federally insured credit unions that enter 
involuntary liquidation. Specifically, the proposal would amend the 
current rule's payout priority provision by specifying the conditions 
that claims in the nature of severance must meet to be allowed as 
provable claims.

DATES: Comments must be received on or before April 2, 2018.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA website: https://www.ncua.gov/regulation-supervision/Pages/rules/proposed.aspx. Follow the instructions for submitting 
comments.
     Email: Address to [email protected]. Include ``[Your 
name] Comments on ``Involuntary Liquidation of Federal Credit Unions 
and Claims Procedures'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, 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 website at http://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 9:00 a.m. and 3:00 p.m. To make an 
appointment, call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Ian Marenna, Senior Trial Attorney, at 
1775 Duke Street, Alexandria, Virginia 22314, or telephone: (703) 518-
6540.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1217 of the Financial Institutions Reform, Recovery and 
Enforcement Act of 1989 (FIRREA) \1\ amended the Federal Credit Union 
Act (FCU Act) by adding Section 207(b), thereby creating a 
comprehensive statutory framework for the liquidation of federally 
insured credit unions.\2\ Section 207(b)(4) authorizes the Board to 
``prescribe regulations regarding the allowance or disallowance of 
claims by the liquidating agent and providing for administrative 
determination of claims and review of such determination.'' \3\ In 
accordance with this authority, the Board adopted part 709 in 1991.\4\
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    \1\ Sec. 1217(a)(3), (4), Public Law 101-73. Sec. 1217(a)(3), 
(4).
    \2\ 12 U.S.C. 1787(b).
    \3\ 12 U.S.C. 1787(b)(4).
    \4\ 56 FR 56925 (Nov. 7, 1991).
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    The Board is proposing changes to part 709 to clarify how severance 
claims will be treated in involuntary liquidations. Specifically, the 
proposed rule would create an exception to the generally applicable 
limitation on provability for severance claims as set out in the 
Board's regulation governing golden parachute payments.\5\
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    \5\ 12 CFR part 750.
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II. Summary of Proposed Changes

    Priority accorded wages, including vacation pay, sick leave, and 
severance. Section 709.5 sets forth the priorities by which claims will 
be paid from the liquidation estate. Currently, Sec.  709.5(b)(2) 
accords second priority to claims for wages, including vacation pay, 
sick leave, and severance, subordinate among unsecured claims only to 
administrative costs and expenses of liquidation. This section operates 
to protect those employees whose employment is terminated as a result 
of the appointment of the liquidating agent, but who may have worked 
some or all of the pay period immediately preceding the date of 
liquidation for which they had not been paid. The regulation 
contemplates that such an employee's final paycheck may include 
compensation for hours worked as well as accrued but unpaid sick leave 
and vacation time, as well as any severance to which he or she is 
entitled.
    This provision may be in tension with NCUA's separate regulatory 
authority to control the types and amounts of payments that may be made 
by federally insured credit unions to institution affiliated parties 
upon termination of their employment. Under the FCU Act, the Board is 
authorized to prohibit or limit ``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.\6\ In addition, part 
750 of NCUA's regulations contains explicit limitations on the ability 
of an institution affiliated party to pursue a severance claim with the 
liquidating agent after a credit union has become insolvent and is 
placed in conservatorship or liquidation.\7\
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    \6\ 12 U.S.C. 1786(t)(4); 12 CFR 750.1(d).
    \7\ 12 CFR 750.7.
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    Thus, part 750 expressly provides that any claim for ``employee 
welfare benefits'' or other benefits that are contingent at the time of 
liquidation are not provable claims against the liquidating agent or 
payable as damages if the conservator or liquidating agent repudiates 
the relevant contract under 12 U.S.C. 1787(c). This bar covers claims 
for severance or other employee welfare benefits that are contingent at 
the time of liquidation, even if otherwise vested, including any 
contingency for termination of employment.\8\ This language is broad 
enough to extend to virtually any claim to benefits or entitlements 
(other than earned but unpaid wages) that remains unpaid as of the date 
of liquidation.
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    \8\ Id.
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    Given the breadth of the language in Sec.  750.7, the Board 
believes clarification concerning the interplay with part 709 is 
necessary and appropriate. Claims for

[[Page 4451]]

unpaid wages or salary earned during the pay period immediately prior 
to the appointment of the conservator or liquidating agent will be 
allowed and accorded the second priority level under Sec.  709.5(b). 
Employees are also allowed to claim earned but unused paid time off as 
of the liquidation date, provided that the credit union had a written 
policy, as reflected in the employee handbook or other similar credit 
union record, permitting departing employees to receive payment for 
earned but unused paid time off with their last paycheck. Employees may 
also claim severance pay, provided that the amount of entitlement is 
determined under an objective formula made available to all employees 
and is specified in a written policy, as reflected in the employee 
handbook or other similar credit union record.
    The documentary evidence requirement reflects the standard for 
agreement-based claims against the liquidation estate and is intended 
to provide the liquidating agent an appropriate basis to determine that 
the credit union agreed to provide the benefits.\9\ Because not every 
credit union may have an employee handbook, the proposed rule would 
allow for other credit union records that evidence entitlement to the 
benefits.
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    \9\ See 12 U.S.C. 1787(b)(9); D'Oench, Duhme & Co. v. Federal 
Deposit Ins. Corp., 315 U.S. 447 (1942). Under the FCU Act and 
relevant case law, a claimant may not sustain a claim against the 
liquidating agent based on an agreement unless the agreement was in 
writing, was executed by the credit union and the claimant, was 
approved by the credit union's board, and has continuously been an 
official credit union record.
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    The Board intends for the provisions in part 750 restricting the 
provability of certain severance claims to be applicable in cases that 
involve executive level employees with separately negotiated employment 
contracts or similar benefit plans that are not generally available to 
all employees on a non-discriminatory basis. In such cases, the Board 
anticipates that the liquidating agent will exercise its power of 
repudiation \10\ concerning the employment contract and/or benefit 
plan, with the result being that neither the severance claim itself nor 
any claim for damages arising from the repudiation will be allowed as 
provable in the liquidation, pursuant to part 750. It should be noted 
that these limitations on provability are applicable whether or not the 
arrangement in question would be considered a prohibited golden 
parachute under part 750 for an open credit union.
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    \10\ 12 U.S.C. 1787(c).
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    Accordingly, the Board proposes to amend Sec.  709.5(b)(2) to 
provide that claims seeking employee benefits other than earned but 
undisbursed salary or wages, including earned but unused paid time off 
and severance pay, will be allowed to the extent that the credit union 
has adopted a written policy, as reflected in the employee handbook or 
other similar record, that establishes a right to such payments and 
that the amount of such payment is determined in accordance with an 
objective, non-discriminatory formula made available to all employees. 
The proposed rule also recognizes that state law may require such 
payments and accommodates this possibility.

III. 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 $100 
million in assets). The severance provision imposes no new requirements 
on credit unions. Instead, it would provide a limited exception to an 
existing regulation that applies to liquidated credit unions. 
Accordingly, the proposed rule 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. Part 709 only concerns credit unions that have 
failed and imposes no information collection requirements on existing 
credit unions. Accordingly, there are no PRA implications.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This proposed rule would clarify certain 
procedures for NCUA's administration of liquidated federally insured 
credit unions. This proposed rule will not have a substantial direct 
effect on the states, on the connection between the national government 
and the states, or on the distribution of power and responsibilities 
among the various levels of government. The Board has determined that 
this proposed rule does not constitute a policy that has federalism 
implications for purposes of the executive order.

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).

List of Subjects in 12 CFR Part 709

    Credit unions, Involuntary liquidation.

    By the National Credit Union Administration Board, this 25th day 
of January, 2018.
Gerard Poliquin,
Secretary of the Board.
    For the reasons discussed in the preamble, NCUA proposes to amend 
12 CFR part 709 as follows:

PART 709--INVOLUNTARY LIQUIDATION OF FEDERAL CREDIT UNIONS AND 
ADJUDICATION OF CREDITOR CLAIMS INVOLVING FEDERALLY INSURED CREDIT 
UNIONS IN LIQUIDATION

0
1. The authority citation for part 709 is revised to read as follows:

    Authority: 12 U.S.C. 1757, 1766, 1767, 1786(h), 1786(t), and 
1787(b)(4), 1788, 1789, 1789a.

0
2. Revise paragraph (b)(2) of Sec.  709.5 to read as follows:


Sec.  709.5  Payout priorities in involuntary liquidation.

* * * * *
    (b) * * *
    (2) Claims for wages and salaries, including vacation, severance, 
and sick leave pay; provided, however, that, in accordance with Sec.  
750.7 of this chapter, no claim for vacation, severance, or sick leave 
pay is provable unless entitlement to the benefit is provided for in 
the credit union employee handbook or other written credit union 
record, is calculable in accordance with an objective formula, and is 
available to all employees who meet applicable eligibility 
requirements, such as minimum length of service, or if such

[[Page 4452]]

payment is required by applicable state or local law.
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[FR Doc. 2018-01884 Filed 1-30-18; 8:45 am]
BILLING CODE 7535-01-P