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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.

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.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
September 21, 2015

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