Golden Parachute and Indemnification Payments
| Published date | 20 December 2018 |
| Citation | 83 FR 65283 |
| Record Number | 2018-27564 |
| Section | Rules and Regulations |
| Court | Federal Housing Finance Agency |
Federal Register, Volume 83 Issue 244 (Thursday, December 20, 2018)
[Federal Register Volume 83, Number 244 (Thursday, December 20, 2018)]
[Rules and Regulations]
[Pages 65283-65292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27564]
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FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1231
RIN 2590-AA72
Golden Parachute and Indemnification Payments
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is amending its
golden parachute payments regulation to better align it with areas of
FHFA's supervisory concern and reduce administrative and compliance
burdens. This final rule amends a requirement that FHFA review and
consent before a regulated entity or the Office of Finance (OF) enters
certain agreements to make, or makes, certain payments that are
contingent on the termination of an affiliated party, if the regulated
entity or the OF is in a troubled condition, in conservatorship or
receivership, or insolvent. FHFA's experience implementing the
regulation indicated that it required review of some agreements and
payments where there was little risk of excess or abuse, and thus that
it was too broad.
As amended, the rule will reduce the number of agreements and
payments that are subject to FHFA prior review by focusing on those
agreements and payments where there is greater risk of an excessive or
abusive payment (in general, payments to and agreements with executive
officers, broad-based plans covering large numbers of employees (such
as severance plans), and payments made to non-executive-officer
employees who may have engaged in certain types of wrongdoing). In
addition, the rule as amended
[[Page 65284]]
clarifies the inquiry into possible employee wrongdoing that a
regulated entity is required to undertake prior to entering into an
agreement to make or making a golden parachute payment. Amendments also
revise and clarify other rule procedures, definitions, and exemptions.
DATES: Effective date: January 22, 2019.
FOR FURTHER INFORMATION CONTACT: Alfred Pollard, General Counsel, (202)
649-3050, Alfred.Pollard@fhfa.gov; Lindsay Simmons, Assistant General
Counsel, (202) 649-3066, Lindsay.Simmons@fhfa.gov; or Mary Pat Fox,
Manager for Compensation, Division of Enterprise Regulation, (202) 649-
3215, MaryPat.Fox@fhfa.gov. These are not toll-free numbers. The
mailing address is: Federal Housing Finance Agency, 400 Seventh Street
SW, Washington, DC 20219. The telephone number for the
Telecommunications Device for the Hearing Impaired is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
FHFA has broad discretionary authority to prohibit or limit any
``golden parachute payment,'' generally defined as any payment, or any
agreement to make a payment, in the nature of compensation by a
regulated entity for the benefit of an ``affiliated party'' that is
contingent on the party's termination, when the regulated entity is in
troubled condition, in conservatorship or receivership, or insolvent (a
``troubled institution'').\1\ This provision, at 12 U.S.C. 4518(e)
(Section 4518(e)), was added to the Federal Housing Enterprises
Financial Safety and Soundness Act (the Safety and Soundness Act) in
2008. Legislative history suggests Section 4518(e) is intended to
permit FHFA to prevent payments to departing employees and other
affiliated parties that are excessive or abusive, could threaten (or
further threaten) the financial condition of the troubled institution,
or are inappropriate based on wrongdoing by the recipient.
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\1\ The ``regulated entities'' are the Federal National Mortgage
Association (Fannie Mae) and any affiliate, the Federal Home Loan
Mortgage Corporation (Freddie Mac) and any affiliate, (collectively,
the Enterprises), and the Federal Home Loan Banks (the Banks). 12
U.S.C. 4502(20). The OF is a joint office of the Banks, to which
FHFA extends the Golden Parachute Payments rule through its general
regulatory authority. See id. sec. 4511(b)(2); see also 78 FR 28452,
28456 (May 14, 2013) and 79 FR 4394 (Jan. 28, 2014). In this notice,
the terms ``regulated entity'' and ``troubled institution'' include
the Enterprises, Banks, and the OF, unless the OF is otherwise
expressly addressed.
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Section 4518(e) requires the Director to promulgate rules defining
``troubled condition'' and prescribing factors to be considered when
prohibiting or limiting any ``golden parachute payment,'' and suggests
some factors the Director may consider. To ensure that FHFA had an
opportunity to review and, if necessary, prohibit or limit golden
parachute payments and agreements before they are made, the golden
parachute payments final rule published in January 2014 (``the 2014
rule'') prohibited all golden parachute payments and agreements that
were not exempt from or permitted by operation of the rule. Prohibited
agreements or payments could be permitted by the Director after review.
Because the 2014 rule applied equally to golden parachute payments
and agreements, it required FHFA to determine the permissibility of
prohibited agreements before they were entered into and of prohibited
payments before they were made. In most cases, this meant that a
troubled institution was required to request FHFA's prior review and
consent to a payment that would be made in accordance with an agreement
to which FHFA had already consented. This ``double approval''
requirement was recognized by FHFA and commenters when the rule was
proposed in 2013 and finalized in 2014.\2\ FHFA noted then that it was
an appropriate supervisory approach because conditions could change
after an agreement was approved but before a payment was made (for
example, the condition of a troubled institution could further
deteriorate, or an intended recipient could be found to have
contributed to the deterioration or engaged in wrongdoing with a
material adverse effect on the regulated entity). In practice, that
approach resulted in FHFA's receiving numerous requests for review of
golden parachute payments and agreements.
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\2\ See 78 FR 28452, 28545 (May 14, 2013) (Notice of Proposed
Rulemaking) and 79 FR 4394, 4396 (Jan. 28, 2014) (Final Rule).
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Narrowly drafted exemptions from the 2014 rule also gave rise to
numerous requests for review. For example, because severance pay plans
of the regulated entities do not meet an exemption for
``nondiscriminatory'' plans, troubled institutions were not permitted
to make severance payments to any employees--even small payments to
lower-level employees--without FHFA review and consent. Likewise, an
exemption for payments pursuant to a ``bona fide deferred compensation
plan or arrangement'' did not apply or was lost if the plan was
established or amended after the date that was one year prior to the
time the regulated entity became a troubled institution, meaning such
plans and any plan payments required FHFA prior review.
Based on experience reviewing proposed agreements and payments,
FHFA determined that the scope of the 2014 rule was too broad because
it required a troubled institution to submit and FHFA to review
agreements and payments where there was very little risk of an abusive
or excessive payment or threat to the financial condition of the paying
regulated entity, and little likelihood that the employee or other
affiliated party receiving payment could have engaged in the type of
wrongdoing that FHFA would consider as the basis for prohibiting or
limiting an agreement or payment. Separately, FHFA also determined that
the 2014 rule could be harmonized with other requirements related to
the compensation of executive officers of the regulated entities,
including termination payments, avoiding the need to request or engage
in separate reviews.\3\ On those bases, FHFA proposed amendments to the
2014 rule, which it fully described and on which it requested comments
in an earlier Federal Register Notice.\4\
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\3\ See generally, 12 U.S.C. 1452(h), 1723a(d)(3), and 4518(a);
see also 12 CFR part 1230.
\4\ 83 FR 43802 (Aug. 28, 2018).
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II. Comments
During a 45-day comment period that ended on October 12, 2018, FHFA
received a joint letter from ten of the eleven Federal Home Loan Banks
(Banks) and the OF (collectively, the Banks), and a letter from Freddie
Mac. Commenters generally expressed support for the reduction of
burdens embodied in the proposed amendments and requested changes to
reduce burden further. Some comments also requested or suggested
clarifications of rule provisions or topics not addressed by the rule,
such as grandfathering. For organizational purposes, comments are
addressed in the order of the rule provision to which they relate.
Section 1231.2, Definition of ``Golden Parachute Payment''
FHFA proposed to remove the phrase ``pursuant to an obligation of
the regulated entity'' from the regulatory ``golden parachute payment''
definition, to clarify that the definition covers gifts and the process
by which FHFA reviews gifts by a troubled institution to a terminating
employee (or other affiliated party). FHFA has general authority to
prohibit an improper gift, and interprets the statutory definition of
``golden parachute payment,'' which references ``an obligation,'' as
clarifying that
[[Page 65285]]
FHFA's authority to prohibit or limit golden parachute payments
includes those made pursuant to an obligation.\5\ FHFA was concerned
that including the phrase ``pursuant to an obligation'' within the
regulatory definition could be read to imply that the rule does not
extend to excessive or abusive payments that are made gratuitously,
which would be inconsistent with the policy of Section 4518(e). FHFA
also noted that it had applied the 2014 rule to gifts, and that
troubled institutions had requested FHFA's review of and consent to
proposed retirement gifts. Thus, the proposed change in regulatory text
would align the rule with FHFA's interpretation and application of it.
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\5\ Under this interpretation, including the phrase ``pursuant
to an obligation of the regulated entity'' in federal law clarifies
the primacy of the federal supervisor to prohibit or limit
obligatory payments, despite state laws otherwise upholding the
enforceability of contracts. In fact, recent court decisions have
confirmed that a taking does not occur for purposes of the Tucker
Act, 28 U.S.C. 1491, when FHFA prohibits a golden parachute payment,
even one made pursuant to an agreement entered into before the
enactment of Section 4518(e) in 2008.
In Piszel v. U.S., 833 F.3d 1366 (Fed. Cir. 2016), the Court of
Appeals for the Federal Circuit held that no taking occurred because
the affiliated party retained the ability to pursue a claim for
damages from the regulated entity for breach of contract. FHFA
agrees that there was no taking, but also observes that awarding
damages for breach of contract would clearly defeat the purpose of
Section 4518(e), which is to prevent the affiliated party from
receiving such a payment. The Court of Federal Claims had held in
that case that no taking occurred (see Piszel v. U.S., 121 Fed. Cl.
793 (2015)) because of an insufficiently cognizable property
interest, considering the contract in the context of the regulatory
and statutory scheme (``a heavily regulated environment;'' and
statutory provisions expressly authorized FHFA's predecessor agency
to prohibit compensation it deemed to be unreasonable at any time
and did not ``guarantee [ ] that the government could not later
change its mind'' after approving compensation as reasonable). That
conclusion would be even stronger with respect to a payment made
subject to an agreement entered into after Section 4518(e)'s
enactment, a proposition with which the Federal Circuit may have
agreed, see 833 F.3d at 1374.
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Although the Banks agreed that FHFA has authority to prohibit an
improper gift, they commented that the phrase ``pursuant to an
obligation of the regulated entity'' should remain in the rule
definition. In contrast to FHFA's interpretation, the Banks stated that
they believe reference to ``an obligation'' in the statutory definition
meant that Congress intended FHFA's authority to prohibit or limit
golden parachute payments to extend only to payments that an
institution is contractually obligated to make. The Banks opined that
payments not pursuant to an obligation, such as improper voluntary
gifts, should be regulated only to the extent that FHFA found such
payments to be excessive or an unsafe and unsound practice, but not
under its golden parachute payments authority.
The Banks and FHFA agree that FHFA has authority to prohibit or
limit any improper voluntary gift, through its general supervisory
authority.\6\ FHFA believes it is important to review payments,
including gifts, to terminating employees by a troubled institution, as
it is more likely that a voluntary gift would be deemed improper (for
example, excessive, abusive, or the result of an unsafe and unsound
practice) when made by a troubled institution. By removing the phrase
``pursuant to an obligation of the regulated entity'' from the
regulatory ``golden parachute payment'' definition, FHFA is clarifying
the process for its review of voluntary payments to terminating
employees by a troubled institution before such payments are made, to
determine their propriety in accordance with transparent regulatory
considerations.
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\6\ See generally, 12 U.S.C. 4511, 4513, and 4526, citations to
which are included in the rule's ``authority'' provision.
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FHFA also notes that other amendments should limit the number of
gifts subject to its review, including rule provisions permitting a
small value gift to an executive officer of a troubled institution on a
significant life event such as retirement, permitting de minimis
payments to other affiliated parties, and exempting payments provided
through a ``nondiscriminatory benefit plan.'' \7\ Together, these
provisions are intended to balance FHFA's supervisory concern for gifts
by troubled institutions with the burden of a prior review process. For
these reasons, FHFA is amending the rule as proposed, by removing the
phrase ``pursuant to an obligation of a regulated entity'' from the
``golden parachute payment'' definition.
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\7\ FHFA intends to interpret ``agreement,'' as defined in the
rule, broadly where appropriate. For example, FHFA may consider a
written policy governing a common practice to be an ``agreement''
for purposes of the rule.
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Section 1231.3(a), Golden Parachute Payments and Agreements Requiring
FHFA Consent
FHFA proposed to retain the general construct of the 2014 rule and
will continue to prohibit all golden parachute payments and agreements
that are not exempt from or permitted by the rule. Prohibited
agreements or payments may still be permitted by the Director after
review. The Banks commented that this approach can result in a ``double
approval'' requirement, which ``creates uncertainty for executives that
the compensation agreements they negotiated at the start of employment
may not be honored.'' The Banks suggested that ``double approval'' be
entirely removed from the rule.
The Banks made a similar comment in response to the 2013 Notice of
Proposed Rulemaking that resulted in the 2014 rule.\8\ As FHFA then
responded, Section 4518(e) clearly permits FHFA to prohibit or limit
golden parachute agreements and payments when a regulated entity is a
troubled institution, and many policy reasons support the approach of
reviewing both agreements (including plans) and associated payments
(e.g., a plan may be designed to cover a class of employees, where
neither the regulated entity requesting review nor FHFA knows the
specific employees who may, or will, ultimately receive a termination
payment; or the financial condition of a troubled institution may
deteriorate after FHFA consents to a plan as a golden parachute
agreement, but before payments are made).\9\
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\8\ 79 FR at 4396.
\9\ Id. at 4396-97.
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It is also not clear that removing ``double approval'' would create
the certainty desired: If an executive officer entered into a
compensation arrangement prior to a Bank's becoming a troubled
institution, but terminated employment when the Bank was troubled, even
under a ``single approval'' approach, FHFA review of either the
agreement (as entered into) or the payment (as proposed to be made)
would be required. The Banks do not suggest that FHFA could not
prohibit or limit either the agreement or the payment at that time,
although such a prohibition or a limitation would clearly disrupt the
agreement the executive officer reached with the Bank when hired. FHFA
also notes that its approach is consistent with that taken by the FDIC
and the other federal banking agencies, and thus may be familiar to
prospective employees of FHFA's regulated entities.\10\ For these
reasons, FHFA is retaining the construct of the 2014 rule and will
require a troubled institution to submit agreements and payments that
are not exempt from or permitted by operation of the rule to FHFA for
prior review and consent.
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\10\ See 12 CFR 359.4(a)(1).
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Section 1231.3(b), Exempt Golden Parachute Payments and Agreements
1. Qualified Pension or Retirement Plans
FHFA did not propose any change to an exemption in the 2014 rule
for payments pursuant to any pension or
[[Page 65286]]
retirement plan that is ``qualified (or intended within a reasonable
period of time to be qualified) under section 401 of the Internal
Revenue Code of 1986 (26 U.S.C. 401).'' That language implements a
statutory exemption and was derived from a similar rule adopted by the
Federal Deposit Insurance Corporation in 1996.\11\ Freddie Mac
commented, however, that although employers previously were able to
obtain periodic Section 401 qualification determinations from the
Internal Revenue Service (IRS), the IRS has curtailed its issuance of
such determinations. Now, certain plans may not receive an IRS
determination for quite some time, if ever.\12\ Consequently, the
phrase ``within a reasonable period of time'' could limit application
of the exemption in an unforeseen and unintended manner. Freddie Mac
requested FHFA clarification that, in cases where a plan that is
intended to be qualified does not have an associated IRS determination,
it will nonetheless be exempt from the ``golden parachute payment''
definition.
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\11\ Compare 12 U.S.C. 1828(k)(4)(C)(i) and 4518(e)(4)(C)(i);
see also 61 FR 5,926, 5931 (Feb. 15, 1996).
\12\ See IRS Rev. Proc. 2016-37 (July 18, 2016).
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The statutory exemption that the 2014 rule implements is not
conditioned on an IRS determination of qualification, but applies to a
plan that ``is qualified (or is intended to be qualified).'' \13\ The
statutory exemption does not include any timing constraint on any such
determination. On that basis, FHFA believes ``is intended to be'' is
best read as referring to the employer's intention regarding the plan's
legal status, as opposed to the employer's intention to obtain an IRS
determination about the plan's legal status. Thus, the statutory
exemption covers both a plan that is qualified and has received an IRS
determination and a plan that the employer intends to be qualified
under section 401 (even without an IRS determination). To reflect that
scope, FHFA has removed the phrase ``within a reasonable period of
time'' from the rule, so that it now mirrors the statutory
exemption.\14\
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\13\ 12 U.S.C. 4518(e)(4)(C)(i).
\14\ In the case that a plan that is intended to be qualified is
discovered to have failed to meet the requirements for
qualification, such as by receiving such a determination from the
IRS, then in order to keep the exemption under the rule, the
employer would need to amend the plan to correct the error and meet
the requirements for qualification as soon as reasonably
practicable.
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2. Nondiscriminatory Benefit Plans
Nondiscriminatory employee plans and programs. To implement a
statutory exemption for ``other nondiscriminatory benefit plans,'' FHFA
proposed to include an exemption for any benefit plan that is a
``nondiscriminatory employee plan or program'' in accordance with IRS
rules and published guidance interpreting 26 U.S.C. 280G (Section
280G). Section 280G generally addresses the calculation of an
``excess'' parachute payment and exempts any ``nondiscriminatory
employee plan or program'' from that calculation. In response to a
question received, FHFA wishes to clarify that requirements necessary
in order for a plan to qualify as ``nondiscriminatory'' for purposes of
Section 280G must be met in order for the plan to be exempt from the
``golden parachute payment'' definition. In other words, it is not
solely the type of plan (e.g., a tuition assistance plan) that triggers
the exemption, but the fact that the plan meets the IRS conditions and
requirements to be considered ``nondiscriminatory.'' \15\
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\15\ For example, to be an exempt cafeteria plan under 26 CFR
280G-1, the plan must not increase benefits for officers or other
highly compensated participants. See 26 U.S.C. 125. Generally,
nondiscriminatory benefit plans would offer similar benefits to all
participants. FHFA intends the exemption for any ``nondiscriminatory
employee plan or program'' to be self-executing, meaning the
regulated entities must determine whether their benefit plans meet
any conditions imposed by the Internal Revenue Code or the IRS, in
order for the exemption to apply.
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Severance pay plans. FHFA also proposed to remove an exemption for
severance pay plans that met a rule definition of ``nondiscriminatory''
(and other conditions), based on its experience implementing the 2014
rule. Specifically, FHFA observed that the market-based severance pay
plans of its regulated entities did not meet that regulatory standard,
and the failure to meet it required FHFA to review all the severance
pay plans and payments of its troubled institutions. Based on that
review, FHFA determined as a matter of policy that severance pay plans
and payments should be subject to prior review. FHFA also noted,
however, that a regulated entity could request an exemption for any
severance pay plan it believes is in fact nondiscriminatory, as Section
4518(e) provides a statutory exemption for ``nondiscriminatory benefit
plans.'' Thus, removal of the regulatory ``nondiscriminatory''
definition would not eliminate the possibility of an exemption for a
nondiscriminatory severance pay plan; rather, it would remove a
regulatory definition that the plans reviewed by FHFA did not meet.
The Banks commented on the value of severance pay plans generally
and opposed removal of the definition of ``nondiscriminatory.'' They
suggested instead that FHFA retain a ``nondiscriminatory'' definition
but amend it to include the types of severance plans currently used at
the Banks or, as an alternative, exempt severance for ``rank-and-file''
employees. The Banks also requested that severance pay plans (among
other types of plans and agreements) in effect as of the date the rule
is amended be grandfathered, expressing the view that Section 4518(e)
does not support ``retroactive'' review.
FHFA agrees with the Banks that severance plans are an important
benefit for retaining employees, and that employee retention can be an
appropriate consideration for a troubled institution.\16\ FHFA
considered amending the regulatory definition of ``nondiscriminatory''
when developing its proposed rule but was not able to design a
definition that both plausibly expressed the ``nondiscriminatory''
requirement and would operate to exempt a current, market-based,
severance pay plan. As a practical matter, these plans are intended to
provide greater benefits to higher-ranking employees than to lower-
ranking ones, and thus are intended to discriminate.\17\ Thus, FHFA
does not believe the Banks' suggestion (expanding the regulatory
definition of ``nondiscriminatory'' to include the severance plans used
by the regulated entities) is workable.
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\16\ FHFA stated in the preamble to the proposal, for example,
that ``an appropriately structured severance pay plan could have a
retentive effect on employees that could be stabilizing as a
troubled institution works to improve its financial condition.'' 83
FR at 43808.
\17\ FHFA also observes that no regulated entity amended its
severance plan to meet the 2014 rule's ``nondiscriminatory''
definition. That could demonstrate that even a troubled institution
believed having a market-based severance pay plan was a more
important business consideration than obtaining the regulatory
exemption that would have applied.
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FHFA also considered exempting severance pay plans and payments as
they relate to lower-ranking employees when developing the proposed
rule. Based on a number of policy considerations (some of which are
also set forth in the proposal), FHFA determined that a better approach
would be to require FHFA review of severance pay plans and, if FHFA
consents to the plan, permit payments to be made to employees other
than executive officers without FHFA review, provided the regulated
entity determines, after appropriate due diligence, that it is
reasonably assured the employee has not engaged in the types of
wrongdoing described in the
[[Page 65287]]
rule. This approach will reduce burdens imposed on a troubled
institution by the 2014 rule: It eliminates the requirement to make a
certification about employee wrongdoing when submitting a plan for
review and eliminates the requirement to submit a request for FHFA
consent to payment provided the regulated entity meets the ``reasonably
assured'' standard, following appropriate due diligence. FHFA also
believes that amendments to the 2014 rule related to assessing possible
wrongdoing by employees will further reduce burden. Specifically, FHFA
is clarifying both the standard that must be met (``reasonably
assured'') and the type of inquiry expected (appropriate due diligence,
considering the level and responsibilities of the employee). FHFA
recognizes that minimal due diligence may be appropriate in some cases,
considering the types of wrongdoing set forth in the rule and the
responsibilities of some employees who may be eligible for severance
pay.
FHFA also clarifies that it does not object to the 2014 rule's
definition of ``nondiscriminatory'' as a standard for nondiscrimination
in a severance pay plan. If a severance pay plan of a troubled
institution is structured to meet that definition--or any other
plausible standard for ``nondiscriminatory''--that regulated entity may
request an exemption for the plan based on its ``nondiscriminatory''
nature. Because there is a statutory exemption for ``nondiscriminatory
benefit plans,'' the rule as amended acknowledges that a troubled
institution may request an exemption for any benefit plan on the basis
that it is ``nondiscriminatory.'' If FHFA agrees with the regulated
entity's supported assertion that a benefit plan, including a severance
pay plan, is ``nondiscriminatory,'' that plan, and payments pursuant to
it, will be exempt.
Finally, FHFA does not agree that Section 4518(e) does not support
review of plans and agreements in effect when a regulation is adopted
or amended. The Banks made a similar comment in 2013, prior to FHFA's
adoption of the 2014 rule, which FHFA addressed at that time.\18\
FHFA's view on the statutory authority and responsibility it was given
by Congress has not changed. Where a rule providing for FHFA review of
and consent to golden parachute payments and agreements has been in
place since early 2014, and FHFA is not now establishing a stricter
standard for review of such plans or agreements, it is particularly
difficult to see how a ``retroactive'' analysis would be applied.
Consequently, plans and agreements in place as of the effective date of
the rule amendments are not grandfathered and will be subject to the
rule provisions.
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\18\ 79 FR at 4395-6.
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Section 1231.3(c), Agreements for Which FHFA Consent Is Not Required
Plans directed by the Director. FHFA proposed to amend the 2014
rule to permit plans or agreements that provide for termination
payments to affiliated parties of a troubled institution without FHFA
review, when such arrangements are established or directed by FHFA
acting as conservator or receiver or otherwise pursuant to authority
conferred by 12 U.S.C. 4617. FHFA received a question about application
of that provision, specifically, whether it was intended to permit
every arrangement established after FHFA was appointed conservator or
receiver. The questioner noted that any arrangement of the regulated
entity established after FHFA was appointed conservator or receiver
could be construed as ``established or directed by FHFA acting as
conservator or receiver'' because, pursuant to 12 U.S.C. 4617, when
appointed conservator or receiver, FHFA succeeds to all rights, titles,
powers and privileges of the regulated entity, with all the powers of
its shareholders, officers, and directors, and to all of the assets of
the regulated entity. That construction was not intended (nor, FHFA
believes, is it a fair interpretation of the rulemaking as a whole,
since such a construction would result in the rule applying almost
exclusively to a regulated entity in troubled condition but not to a
regulated entity for which a conservator or receiver has been
appointed, and would have been discussed in that context; nor is it a
fully accurate interpretation of the relationship between the
conservator and the Enterprises' boards and management.\19\) To avoid
any future confusion, however, FHFA has added the word ``expressly,''
which it always viewed as implied, to provisions permitting the
arrangements established or directed by the Director acting pursuant to
authority conferred by 12 U.S.C. 4617, without FHFA prior review or
consent.
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\19\ See Responsibilities of Boards of Directors, Corporate
Practices and Corporate Governance Matters, 80 FR 72328 n.2 (Nov.
19, 2015).
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De minimis amount. FHFA proposed to permit a troubled institution
to enter into an agreement to make a golden parachute payment to an
affiliated party other than an executive officer without FHFA review
and consent, and without the due diligence otherwise required, where
the amount of the payment, when aggregated with other golden parachute
payments, does not exceed $2,500. FHFA also noted that a higher or
lower amount than the proposal's cap of $2,500 could be supported.
Freddie Mac and the Banks each commented on this proposal, generally
supporting the concept of permitting de minimis payments while
requesting that the de minimis amount be increased from $2,500 to
$5,000.
As an alternative to increasing the de minimis amount, Freddie Mac
suggested exempting all golden parachute payments paid to employees of
a certain level and below. Freddie Mac suggested a level of employee,
based on its employment structure, to whom it believed payments would
not be subject to FHFA review, but also acknowledged that different
regulated entities would have different employee structures. Freddie
Mac suggested that FHFA could determine the appropriate level of
employee for such an exemption at the time the regulated entity becomes
a troubled institution.
When developing the proposed rule, FHFA staff considered a de
minimis amount of $5,000, which is the amount of a de minimis exemption
provided by the FDIC in guidance on application of its similar
rule.\20\ FHFA staff selected $2,500 because, should one of FHFA's
regulated entities become troubled, FHFA does not have access to a
privately funded, FHFA-administered insurance fund, in contrast to the
FDIC with regard to insured depository institutions. On further
consideration, however, FHFA believes that increasing the amount to
$5,000 will not materially change the presumption stated in the
preamble to the proposed rule, that a non-executive-officer affiliated
party receiving such a de minimis amount upon separation either was not
in a position to materially affect the financial condition of the
regulated entity or engage in certain types of wrongdoing listed in the
rule or, if the affiliated party was in such a position, the payment
does not settle a claim involving such wrongdoing. For this reason,
FHFA has increased the de minimis cap in the final rule to $5,000.
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\20\ See FDIC Guidance on Golden Parachute Applications, FIL
Letter 66-2010 (Oct. 14, 2010).
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In contrast, FHFA believes Freddie Mac's suggestion to exempt all
golden parachute payments to all employees below a certain level would
not be appropriate. It would be difficult for FHFA to establish, by
rule, a level of employee for which there is no value in reviewing
golden parachute payments, regardless of the size of the payment. To do
so would require reasonable
[[Page 65288]]
confidence that, among other things, an employee at or below that level
could not engage in the types of wrongdoing set forth in the rule.
While as a general matter the level of an employee can be an indicator
of the extent of the employee's ability to affect a company, due
diligence to determine whether the types of wrongdoing listed in the
rule have occurred can still be important. For example, lower-level
employees still have the ability to cause material harm to a company
(such as reputational harm and technological sabotage) and may still
receive substantial settlement payments. For those reasons, FHFA
believes that the amount of the payment, rather than the level of the
employee, serves as a better proxy for identifying instances where the
burden of review, including due diligence, is not warranted. FHFA
believes that the proposed approach, which would reduce burden by
permitting smaller value payments to employees (and other affiliated
parties) who are not executive officers, strikes the appropriate
balance of administrative and policy considerations.
Section 1231.3(d), Payments for Which FHFA Consent Is Not Required
FHFA proposed to permit some golden parachute payments to be made
to an affiliated party other than an executive officer without FHFA
prior review and consent. The Banks suggested a change to the proposed
rule text for clarity and readability (to modify an introductory phrase
to read ``To an affiliated party who is not an executive officer,
where:''). FHFA agrees that this change improves clarity of the rule,
and has changed the text as suggested.
Section 1231.3(e), Required Due Diligence Review and Standard
FHFA proposed to require a troubled institution that concludes,
after appropriate due diligence, that it is not ``reasonably assured''
the affiliated party has not engaged in the listed types of wrongdoing
to provide notice of its concerns to FHFA, even if the regulated entity
does not enter into an agreement or make a payment to the affiliated
party. The Banks objected to the proposed notice requirement as
unnecessary, possibly jeopardizing the attorney-client privilege of the
regulated entity, and possibly ``chilling'' the regulated entity's
ability to enter into individually negotiated settlement agreements and
other types of severance arrangements.
FHFA intends the notice to provide factual information about the
possible wrongdoing in which the troubled institution believes the
affiliated party may have engaged. FHFA did not intend the notice to
include communications to or from lawyers, and thus does not believe it
will implicate any attorney-client privilege. If FHFA has additional
questions about a specific situation that may implicate any attorney-
client privileged communications, FHFA expects to work with the
troubled institution to avoid any possible waiver, based on the
particular facts and circumstances of the matter at hand.
Section 1231.3(f), Factors for Director Consideration.
Based on the legislative history of Section 4518(e) and FHFA's
experience administering the 2014 rule, FHFA proposed adding whether a
golden parachute payment or agreement is ``excessive or abusive or
threatens the financial condition of the troubled institution'' to
listed factors for the Director's consideration. The Banks requested
that FHFA clarify the terms ``excessive'' and ``abusive.''
What constitutes ``excessive'' or ``abusive'' will depend on the
circumstances of the agreement or payment, considering the particular
troubled institution, its condition, the affiliated party to whom
payment would be made, the amount of any payment proposed to be made,
and the circumstances surrounding any agreement or plan governing
payment. For that reason, FHFA does not believe it is possible to
define those terms by rule in a manner that would expand on or
illuminate their plain meaning. FHFA notes that this is only one factor
among others for the Director to consider when determining whether to
prohibit or limit a golden parachute payment.
Impact of Rule Amendments on Existing Plans
FHFA also wishes to clarify that plans of a troubled institution to
which FHFA consented under the 2014 rule do not need to be submitted
again due to the amendment of the rule, provided the regulated entity
is in the same condition that caused it to be a troubled institution
when FHFA previously consented to the plan. For example, if one of the
Enterprises is currently operating a benefit plan to which FHFA
consented, or that FHFA has notified the Enterprise was otherwise able
to continue in operation under the 2014 rule, that plan does not need
to be resubmitted simply because the rule is being amended. The
amendments adopted do not suggest that consent it has previously
provided should now be reconsidered, and avoiding unnecessary
resubmission of plans furthers FHFA's desire to reduce regulatory
burden. On the other hand, payments to be made after the effective date
of the rule amendments are subject to the rule as amended, and must be
submitted for review if review is required by the rule.
III. Consideration of Differences Between the Banks and the Enterprises
Section 1313(f) of the Safety and Soundness Act (12 U.S.C.
4513(f)), as amended by section 1201 of HERA, requires the Director,
when promulgating regulations relating to the Banks, to consider the
differences between the Banks and the Enterprises with respect to the
Banks' cooperative ownership structure, mission of providing liquidity
to members, affordable housing and community development mission,
capital structure, and joint and several liability. The Director may
also consider any other differences that are deemed appropriate.
In preparing this final rule, the Director considered the
differences between the Banks and the Enterprises as they relate to the
above factors, and determined that the amendments in the final rule are
neutral regarding the statutory factors. In the proposed rule, FHFA
requested comments from the public regarding whether differences
related to these factors should result in any revisions to the proposed
rule. No significant relevant comments were received.
IV. Paperwork Reduction Act
The final rule does not contain any information collection
requirement that requires the approval of the Office of Management and
Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted any information to OMB for
review.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of this final
rule under the Regulatory Flexibility Act. The General Counsel of FHFA
certifies that this final rule will not have a significant economic
impact on a substantial number of small entities
[[Page 65289]]
because the regulation applies only to the regulated entities, which
are not small entities for purposes of the Regulatory Flexibility Act.
VI. Congressional Review Act
In accordance with the Congressional Review Act,\21\ FHFA has
determined that this final rule is not a major rule and has verified
this determination with the OMB. See 5 U.S.C. 504(2).
---------------------------------------------------------------------------
\21\ See 5 U.S.C. 804(2).
---------------------------------------------------------------------------
List of Subjects in 12 CFR Part 1231
Golden parachutes, Government sponsored enterprises,
Indemnification payments.
Accordingly, for the reasons stated in the SUPPLEMENTARY
INFORMATION, and under the authority of 12 U.S.C. 4511, 4513, 4517,
4518, 4518a, and 4526, FHFA amends part 1231 of subchapter B of chapter
XII of Title 12 of the Code of Federal Regulations as follows:
PART 1231--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS
0
1. The authority citation for part 1231 is revised to read as follows:
Authority: 12 U.S.C. 4511, 4513, 4517, 4518, 4518a, 4526, and
4617.
0
2. Revise Sec. 1231.1 to read as follows:
Sec. 1231.1 Purpose.
The purpose of this part is to implement section 1318(e) of the
Safety and Soundness Act (12 U.S.C. 4518(e)) by setting forth the
factors that the Director will take into consideration in determining
whether to limit or prohibit golden parachute payments and agreements
and by setting forth conditions for prohibited and permissible
indemnification payments that regulated entities and the Office of
Finance (OF) may make to affiliated parties.
0
3. Revise Sec. 1231.2 to read as follows:
Sec. 1231.2 Definitions.
The following definitions apply to the terms used in this part:
Affiliated party means:
(1) With respect to a golden parachute payment:
(i) Any director, officer, or employee of a regulated entity or the
OF; and
(ii) Any other person as determined by the Director (by regulation
or on a case-by-case basis) who participates or participated in the
conduct of the affairs of the regulated entity or the OF, provided that
a member of a Federal Home Loan Bank shall not be deemed to have
participated in the affairs of that Federal Home Loan Bank solely by
virtue of being a shareholder of, and obtaining advances from, that
Federal Home Loan Bank; and
(2) With respect to an indemnification payment:
(i) By the OF, any director, officer, or manager of the OF; and
(ii) By a regulated entity:
(A) Any director, officer, employee, or controlling stockholder of,
or agent for, a regulated entity;
(B) Any shareholder, affiliate, consultant, or joint venture
partner of a regulated entity, and any other person as determined by
the Director (by regulation or on a case-by-case basis) that
participates in the conduct of the affairs of a regulated entity,
provided that a member of a Federal Home Loan Bank shall not be deemed
to have participated in the affairs of that Federal Home Loan Bank
solely by virtue of being a shareholder of, and obtaining advances
from, that Federal Home Loan Bank;
(C) Any independent contractor for a regulated entity (including
any attorney, appraiser, or accountant) if:
(1) The independent contractor knowingly or recklessly participates
in any violation of any law or regulation, any breach of fiduciary
duty, or any unsafe or unsound practice; and
(2) Such violation, breach, or practice caused, or is likely to
cause, more than a minimal financial loss to, or a significant adverse
effect on, the regulated entity; or
(D) Any not-for-profit corporation that receives its principal
funding, on an ongoing basis, from any regulated entity.
Agreement means, with respect to a golden parachute payment, any
plan, contract, arrangement, or other statement setting forth
conditions for any payment by a regulated entity or the OF to an
affiliated party.
Bona fide deferred compensation plan or arrangement means any plan,
contract, agreement, or other arrangement:
(1) Whereby an affiliated party voluntarily elects to defer all or
a portion of the reasonable compensation, wages, or fees paid for
services rendered which otherwise would have been paid to such party at
the time the services were rendered (including a plan that provides for
the crediting of a reasonable investment return on such elective
deferrals); or
(2) That is established as a nonqualified deferred compensation or
supplemental retirement plan, other than an elective deferral plan
described in paragraph (1) of this definition:
(i) Primarily for the purpose of providing benefits for certain
affiliated parties in excess of the limitations on contributions and
benefits imposed by sections 401(a)(17), 402(g), 415, or any other
applicable provision of the Internal Revenue Code of 1986 (26 U.S.C.
401(a)(17), 402(g), 415); or
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
directors, management, or highly compensated employees; and
(3) In the case of any plans as described in paragraphs (1) and (2)
of this definition, the following requirements shall apply:
(i) The affiliated party has a vested right, as defined under the
applicable plan document, at the time of termination of employment to
payments under such plan;
(ii) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
(iii) Any payment made pursuant to such plan is not based on any
discretionary acceleration of vesting or accrual of benefits which
occurs at any time later than one year prior to the regulated entity or
the OF becoming a troubled institution;
(iv) The regulated entity or the OF has previously recognized
compensation expense and accrued a liability for the benefit payments
according to GAAP, or segregated or otherwise set aside assets in a
trust which may only be used to pay plan benefits and related expenses,
except that the assets of such trust may be available to satisfy claims
of the troubled institution's creditors in the case of insolvency; and
(v) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
Executive officer means an ``executive officer'' as defined in 12
CFR 1230.2, and includes any director, officer, employee or other
affiliated party whose participation in the conduct of the business of
the regulated entity or the OF has been determined by the Director to
be so substantial as to justify treatment as an ``executive officer.''
Golden parachute payment means any payment in the nature of
compensation made by a troubled institution for the benefit of any
current or former affiliated party that is contingent on or provided in
connection with the termination of such party's primary employment or
affiliation with the troubled institution.
Indemnification payment means any payment (or any agreement to make
any payment) by any regulated entity or the OF for the benefit of any
current or
[[Page 65290]]
former affiliated party, to pay or reimburse such person for any
liability or legal expense.
Individually negotiated settlement agreement means an agreement
that settles a claim, or avoids a claim reasonably anticipated to be
brought, against a troubled institution by an affiliated party and
involves a payment in association with termination to, and a release of
claims by, the affiliated party.
Liability or legal expense means--
(1) Any legal or other professional expense incurred in connection
with any claim, proceeding, or action;
(2) The amount of, and any cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit, including but not limited to
stock options and stock appreciation rights; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter
of credit or other instrument, for the purpose of making, or pursuant
to any agreement to make, any payment on or after the date on which
such funds or assets are segregated, or at the time of or after such
trust is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on:
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
Permitted means, with regard to any agreement, that the agreement
either does not require the Director's consent under this part or has
received the Director's consent in accordance with this part.
Troubled institution means a regulated entity or the OF that is:
(1) Insolvent;
(2) In conservatorship or receivership;
(3) Subject to a cease-and-desist order or written agreement issued
by FHFA that requires action to improve its financial condition or is
subject to a proceeding initiated by the Director, which contemplates
the issuance of an order that requires action to improve its financial
condition, unless otherwise informed in writing by FHFA;
(4) Assigned a composite rating of 4 or 5 by FHFA under its CAMELSO
examination rating system as it may be revised from time to time;
(5) Informed in writing by the Director that it is a troubled
institution for purposes of the requirements of this part on the basis
of the most recent report of examination or other information available
to FHFA, on account of its financial condition, risk profile, or
management deficiencies; or
(6) In contemplation of the occurrence of an event described in
paragraphs (1) through (5) of this definition. A regulated entity or
the OF is subject to a rebuttable presumption that it is in
contemplation of the occurrence of such an event during the 90 day
period preceding such occurrence.
0
4. Revise Sec. 1231.3 to read as follows:
Sec. 1231.3 Golden parachute payments and agreements.
(a) In general, FHFA consent is required. No troubled institution
shall make or agree to make any golden parachute payment without the
Director's consent, except as provided in this part.
(b) Exempt agreements and payments. The following agreements and
payments, including payments associated with an agreement, are not
golden parachute agreements or payments for purposes of this part and,
for that reason, may be made without the Director's consent:
(1) Any pension or retirement plan that is qualified (or is
intended to be qualified) under section 401 of the Internal Revenue
Code of 1986 (26 U.S.C. 401);
(2) Any ``employee welfare benefit plan'' as that term is defined
in section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended (29 U.S.C. 1002(1)), other than:
(i) Any deferred compensation plan or arrangement; and
(ii) Any severance pay plan or agreement;
(3) Any benefit plan that:
(i) Is a ``nondiscriminatory employee plan or program'' for the
purposes of section 280G of the Internal Revenue Code of 1986 (26
U.S.C. 280G) and applicable regulations; or
(ii) Has been submitted to the Director for review in accordance
with this part and that the Director has determined to be
nondiscriminatory, unless such a plan is otherwise specifically
addressed by this part;
(4) Any ``bona fide deferred compensation plan or arrangement'' as
defined in this part provided that the plan:
(i) Was in effect for, and not materially amended to increase
benefits payable thereunder (except for changes required by law)
within, the one-year period prior to the regulated entity or the OF
becoming a troubled institution; or
(ii) Has been determined to be permissible by the Director;
(5) Any payment made by reason of:
(i) Death; or
(ii) Termination caused by disability of the affiliated party; and
(6) Any severance or similar payment that is required to be made
pursuant to a state statute that is applicable to all employers within
the appropriate jurisdiction (with the exception of employers that are
exempt due to their small number of employees or other similar
criteria).
(c) Golden parachute payment agreements for which FHFA consent is
not required. A troubled institution may enter into the following
agreements to make a golden parachute payment without the Director's
consent:
(1) With any affiliated party where the agreement is expressly
directed or established by the Director exercising authority conferred
by 12 U.S.C. 4617.
(2) With an affiliated party who is not an executive officer where
the agreement:
(i) Is an individually negotiated settlement agreement, and the
conditions of paragraph (e)(2) of this section are met; or
(ii) Provides for a golden parachute payment that, when aggregated
with all other golden parachute payments to the affiliated party, does
not exceed $5,000 (subject to any adjustment for inflation pursuant to
paragraph (g) of this section).
(d) Golden parachute payments for which FHFA consent is not
required. A troubled institution may make the following golden
parachute payments without the Director's consent:
(1) To any affiliated party where:
(i) The payment is required to be made pursuant to a permitted
individually negotiated settlement agreement; or
(ii) The Director previously consented to such payment in a written
notice to the troubled institution (which may be included in the
Director's consent to the agreement), the payment is made in accordance
with a permitted agreement, and the troubled institution has met any
conditions established by the Director for making the payment.
(2) To an executive officer where the payment recognizes a
significant life event and does not exceed $500 in value
[[Page 65291]]
(subject to any adjustment for inflation pursuant to paragraph (g) of
this section).
(3) To an affiliated party who is not an executive officer, where:
(i) The payment is made in accordance with a permitted agreement
and the conditions of paragraph (e)(2) of this section are met; or
(ii) The payment when aggregated with other golden parachute
payments to the affiliated party does not exceed $5,000 (subject to any
adjustment for inflation pursuant to paragraph (g) of this section).
(e) Required due diligence review; due diligence standard--(1)
Agreements and payments where consent is requested. A troubled
institution making a request for consent to enter into a golden
parachute payment agreement with, or to make a golden parachute payment
to, an individual affiliated party shall conduct due diligence
appropriate to the level and responsibility of the affiliated party
covered by the agreement or to whom payment would be made, to determine
whether there is information, evidence, documents, or other materials
that indicate there is a reasonable basis to believe, at the time the
request is submitted, that the affiliated party:
(i) Has committed any fraudulent act or omission, breach of trust
or fiduciary duty, or insider abuse with regard to the regulated entity
or the OF that is likely to have a material adverse effect on the
regulated entity or the OF;
(ii) Is substantially responsible for the regulated entity or the
OF being a troubled institution;
(iii) Has materially violated any applicable Federal or State law
or regulation that has had or is likely to have a material effect on
the regulated entity or the OF; or
(iv) Has violated or conspired to violate sections 215, 657, 1006,
1014, or 1344 of title 18 of the United States Code, or section 1341 or
1343 of such title affecting a ``financial institution'' as the term is
defined in title 18 of the United States Code (18 U.S.C. 20).
(2) Agreements and payments permitted without the Director's
consent. No troubled institution shall enter into an agreement pursuant
to paragraph (c)(2)(i) of this section or make a payment pursuant to
paragraph (d)(3)(i) of this section unless it is reasonably assured,
following due diligence in accordance with paragraph (e)(1) of this
section, that the affiliated party to whom payment would be made has
not engaged in any of the actions listed in paragraphs (e)(1)(i)
through (iv) of this section.
(3) Required notice to FHFA. If a troubled institution determines
it is unable to enter into an agreement pursuant to paragraph (c)(2)(i)
of this section or make a payment pursuant to (d)(3)(i) of this section
without the Director's consent because it cannot meet the standard set
forth in paragraph (e)(2) of this section, and thereafter does not
request the Director's consent to make the payment, then the troubled
institution shall provide notice to FHFA of each reason for which it
cannot meet the standard set forth in paragraph (e)(2) of this section,
within 15 business days of its determination.
(f) Factors for Director consideration. In making a determination
under this section, the Director may consider:
(1) Whether, and to what degree, the affiliated party was in a
position of managerial or fiduciary responsibility;
(2) The length of time the affiliated party was affiliated with the
regulated entity or the OF, and the degree to which the proposed
payment represents a reasonable payment for services rendered over the
period of affiliation;
(3) Whether the golden parachute payment would be made pursuant to
an employee benefit plan that is usual and customary;
(4) Whether the golden parachute payment or agreement is excessive
or abusive or threatens the financial condition of the troubled
institution; and
(5) Any other factor the Director determines relevant to the facts
and circumstances surrounding the golden parachute payment or
agreement, including any fraudulent act or omission, breach of
fiduciary duty, violation of law, rule, regulation, order, or written
agreement, and the level of willful misconduct, breach of fiduciary
duty, and malfeasance on the part of the affiliated party.
(g) Adjustment for inflation. Monetary amounts set forth in this
part may be adjusted for inflation by increasing the dollar amount set
forth in this part by the percentage, if any, by which the Consumer
Price Index for all-urban consumers published by the Department of
Labor (``CPI-U'') for December of the calendar year preceding payment
exceeds the CPI-U for the month of November 2018, with the resulting
sum rounded up to the nearest whole dollar.
0
5. Revise Sec. 1231.5 to read as follows:
Sec. 1231.5 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
under the provisions of this part by FHFA, shall not in any way bind
any receiver of a regulated entity. Any consent or approval granted
under the provisions of this part by FHFA shall not in any way obligate
FHFA as receiver to pay any claim or obligation pursuant to any golden
parachute, severance, indemnification, or other agreement, or otherwise
improve any claim of any affiliated party on or against FHFA as
receiver. Nothing in this part may be construed to permit the payment
of salary or any liability or legal expense of an affiliated party
contrary to section 1318(e)(3) of the Safety and Soundness Act (12
U.S.C. 4518(e)(3)).
0
6. Revise Sec. 1231.6 to read as follows:
Sec. 1231.6 Filing instructions.
(a) Scope. This section contains procedures for requesting the
consent of the Director and for filing any notice, where consent or
notice is required by Sec. 1231.3.
(b) Where to file. A troubled institution must submit any request
for consent or notice required by Sec. 1231.3 to the Manager,
Executive Compensation Branch, or to such other person as FHFA may
direct.
(c) Content of a request for FHFA consent. A request pursuant to
Sec. 1231.3 must:
(1) Be in writing;
(2) State the reasons why the troubled institution seeks to enter
into the agreement or make the payment;
(3) Identify the affiliated party or describe of the class or group
of affiliated parties who would receive or be eligible to receive
payment;
(4) Include a copy of any agreement, including any plan document,
contract, other agreement or policy regarding the subject matter of the
request;
(5) State the cost of the proposed payment or payments, and the
impact on the capital and earnings of the troubled institution;
(6) State the reasons why consent to the agreement or payment, or
to both the agreement and payment, should be granted;
(7) For any plan that the troubled institution believes is a
nondiscriminatory benefit plan, other than a plan covered by Sec.
1231.3(b)(3)(i), state the basis for the conclusion that the plan is
nondiscriminatory;
(8) For any bona fide deferred compensation plan or arrangement,
state whether the plan would be exempt under this part but for the fact
that it was either established or materially amended to increase
benefits payable thereunder (except for changes required by law) within
the one-year period prior to the regulated entity or the OF becoming a
troubled institution;
(9) For any agreement with an individual affiliated party, or for
any payment, either:
[[Page 65292]]
(i) State that the troubled institution is reasonably assured that
the affiliated party has not engaged in any of the actions listed in
Sec. 1231.3(e)(1)(i) through (iv), or,
(ii) If the troubled institution is not reasonably assured that the
affiliated party has not engaged in any of the actions listed in Sec.
1231.3(e)(1)(i) through (iv) but nonetheless wishes to request consent,
describe the results of its due diligence and, in light of those
results, the reason why consent to the agreement or payment should be
granted.
(d) FHFA decision on a request. FHFA shall provide the troubled
institution with written notice of the decision on a request as soon as
practicable after it is rendered.
(e) Content of notice to FHFA. A notice pursuant to Sec.
1231.3(e)(3) must:
(1) Be in writing;
(2) Identify the affiliated party who would receive or be eligible
to receive payment;
(3) Include a copy of any agreement or policy regarding the subject
matter of the request; and
(4) State each reason why the troubled institution cannot meet the
standard set forth in Sec. 1231.3(e)(2).
(f) Waiver of form or content requirements. FHFA may waive or
modify any requirement related to the form or content of a request or
notice, in circumstances deemed appropriate by FHFA.
(g) Additional information. FHFA may request additional information
at any time during the processing of the request or after receiving a
notice.
Dated: December 14, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2018-27564 Filed 12-19-18; 8:45 am]
BILLING CODE 8070-01-P
