November 18, 2005
Dear [ ]:
Reference is made to your letter dated October 5, 2005 regarding the ability of a credit
union chartered under the laws of New York State to invest in an insurance policy
intended to fund the credit union's obligations to one or more of its employees under a
deferred compensation plan.
In this regard, I enclose a copy of a June 13, 2005 letter to the New York State Credit
Union League, Inc. I believe this letter is responsive to your inquiry.
Please do not hesitate to contact me if I can be of any further assistance in this regard.
Very truly yours,
Gene C. Brooks
June 13, 2005
Michael A. Lanotte, Esq.
Senior Vice President/General Counsel
Claude Kazanski, Esq.
Assistant Vice President & Associate General Counsel
New York State Credit Union League, Inc.
19 British American Blvd.
Latham, NY 12110
Dear Messrs. Lanotte and Kazanski:
Your letter of February 17, 2005 has been referred to me for review and response. Let
me begin by apologizing for the delay in responding to your letter. Your letter asks
clarification of whether the New York Banking Law (the Banking Law") would bar a
New York State chartered credit union from funding a deferred compensation plan (the
"Plan") through the purchase of an insurance, annuity or mutual fund product The Plan
would benefit only a portion of the employees of the credit union.
By way of background, I had previously opined that Section 477(1) of the Banking Law
would bar a credit union from offering a discriminatory pension plan that benefited only
a portion of the employees of the credit union. Section 477(1) provides in relevant part
that a credit union may provide pensions to employees pursuant to a nondiscriminatory
plan. I previously opined that any pension plan available only to a portion of a credit
union's employees would violate this restriction.
In your letter and subsequent e-mail dated March 28, 2005, you have indicated that in
fact the Plan is not a pension plan but rather a deferred compensation plan. As I
understand it, compensation otherwise payable to an employee is deferred by the
employee under the Plan. It is then invested by the credit union in "an insurance,
annuity or mutual fund product", and subsequently paid to the employee. This Plan is
designed to provide compensation for continued service over a fixed period of time,
and the timing of payment of such compensation is not tied to retirement or other
termination of service. In my opinion, this type of plan is not a pension plan and,
therefore, it would not be barred by Section 477(1).
To ensure that such plans are consistent with the Banking Law, I recommend that any
credit union establishing a Plan have on file an opinion of its outside counsel to the
effect that the Plan is a deferred compensation Plan and not a pension plan.
Your letter also asks whether credit unions investing in such plans are permitted to
invest these monies in investments not otherwise permissible for credit unions under
the Banking Law. You note in this regard that this approach is permitted by the
National Credit Union Administration for federal credit unions. (See NCUA Regulations,
Part 701.19(c).) As noted above, the deferred compensation contributed to the Plan is
typically invested in an insurance product, annuity or mutual fund product.
This appears to be a question of first impression for the Department. While I see the
merit of consistency with NCUA regulations, I do not see how we can avoid the
requirements of the Banking Law in this regard. Specifically, it is my opinion that if the
credit union remains responsible for any loses on the funds contributed to the deferred
compensation plan or would be obligated to ensure a specific return on the funds for
the employees covered by the Plan, there is no reason in my opinion not to limit the
investments to those permissible for credit unions under the Banking Law. This is
because the credit union is responsible for any loss as it would on any other monies
invested by it.
However, if the risk of loss on the monies contributed to the deferred compensation
plan by the credit union is to be borne entirely by the employee-beneficiaries of the
credit union, then in my view the monies are no different than salaries paid to and used
as determined by the employee. Such monies may be invested by the credit union
without following the guidelines set forth in the Banking Law. Of course, such
investments should be made on a prudent basis, after the exercise of appropriate due
diligence so as to minimize any possible claims by the beneficiaries of the deferred
I trust this will be helpful. If you have any questions, please do not hesitate to contact
Very truly yours,
Gene C. Brooks