Compensating Directors: What's Fair And What's Foul?

Here’s a list of specific ways that credit unions can and cannot compensate their board volunteers.

 

By Kaufman & Canoles

 

As is well known, federal credit unions are not permitted to directly compensate members of their Boards of Directors. However, the NCUA has approved a number of methods to assist directors financially through NCUA guidance issued in response to inquiries from many federal credit unions anxious to support the work of their board members and to encourage volunteers.

Some of the expenses the NCUA’s guidance has found to be permissible are well known (such as reasonable travel reimbursement), while others less so. The NCUA has typically found expenses directly incurred for the benefit of the federal credit union, or in connection with a director’s official business on behalf of the federal credit union, to be permissible. While the rule does have a gray area, the less direct the connection of the expense to the federal credit union or the official business, the less likely that expense is to be permitted by the regulator.

Below you will find a chart to help you navigate questions related to director compensation, with the applicable NCUA document referenced. Federal credit unions can use this chart and the details provided by the NCUA in the source letters to prepare or amend policies relating to director expenses. New guidance is issued periodically so, as always, if you have any questions related to director compensation please consult with the regulator or your attorney.

Permissible

Impermissible

Action

NCUA Source letter

Action

NCUA Source letter

$250 gift card provided to officials as a fifth-year service award
Sets gift limit at $50/year

11-0805

Reimbursement of baby-siting expenses while official is engaged in official activity

92-0507

“Small” gift made to official’s share account
No set value but must be nominal

93-0233

Reimbursement for taking vacation time to conduct official activity

92-0507

Long-term care insurance without coverage limited to associated activity

10-0913

Long-term care or cost reimbursements for non-voting officials (modified by 11-0152 which limited this opinion to honorary members)

10-0913

Training cost and expense reimbursement for non-voting members that are not purely honorary

11-0152

Free banking services

00-0508

Reimbursement for use/ provision of electronic equipment/Internet

03-1053

Annuity

97-1257

Direct purchase of health insurance or reimbursement of premium

99-0621

Reimbursement of medical expenses not covered by health insurance (i.e., co-payments and deductibles)

02-1203

*Chart as of 8/15/15

Permissible

Impermissible

Action

NCUA Source letter

Action

NCUA Source letter

Meals-
Case specific analysis
Evaluation Factors:
Was the meal cost incurred while on official business?
Was the meal reasonable and propriety according to the norms of the Board?

91-0215

Preferential banking services/terms/conditions

95-1236

Reimbursement for travel expenses to CU meeting of official and one (1) immediate family member

00-0524

Reimbursement of cost of official’s “friend” accompanying official to CU meeting

00-0524

Reimbursement of travel expenses via per diem (must be reasonable/proper)

96-0709

Reimbursement of health insurance costs that are not greater than 3rd party benefit received by the official

02-0123

Reimbursement of cost for attending conference as CU official (includes the cost of one (1) additional family member)

96-1217

 

 

Provision of Long Term care insurance as long as the official is capable and is actually serving as a CU official

03-0382

 

 

Participate in self-funded health benefit plans (need to meet conditions set forth in letter)

95-1148

 

 

Extension of health benefits to immediate family members of official if there is no additional cost to the FCU

00-0849

 

 

1) Reimbursement of premiums for disease specific health insurance in accordance with written policy outlining reimbursement, documentation requirements, and monitoring

Plan must have reasonable coverage and amount, Plan must be within bounds of safety and soundness Coverage must stop with termination of board service

06-0932

 

 

*Chart as of 8/15/15

 

Author

Dustin H. DeVore is co-chair of Kaufman & Canoles’ nationally recognized Credit Union Team. He works closely with a number of credit unions on regulatory and lending issues. Dustin can be reached at (757) 259-3808 or dhdevore@kaufcan.com.

Hazel C. Wong is an associate on Kaufman & Canoles’ Credit Union Team and she can be reached at (804) 771-5782 or hcwong@kaufcan.com.

 

Company

Given their structure and governance, credit unions have very specific legal needs. Kaufman & Canoles’ Credit Union Team understands the credit union difference – member owned, not-for profit financial institutions that are governed by volunteer boards. Our attorneys are familiar with all the state and federal statutes and regulations that must be followed in order to run a successful credit union. We use our knowledge and detail-oriented approach not only to help credit unions with commercial litigation and real estate transactions, but also with daily operations, regulatory compliance issues and human resources assistance. We not only understand a credit unions unique needs, we anticipate them.

 

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Sept. 21, 2015


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