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It is well known that federal credit unions are not permitted to directly compensate members of their boards of directors. However, as we go to press with this article, a new administration is being sworn in and there are evolving discussions about whether directors of federal credit unions should be directly compensated. These discussions are buttressed by the fact that a number of FCUs are converting to state charters primarily so they can pay their directors.
An estimated 18 states allow directors of state-chartered credit unions to be compensated. Some of these state laws are very specific. For example, the Arizona statute provides, “A credit union may compensate an officer, director or committee member for the officer’s, director’s, committee member’s services to the credit union. Providing reasonable life, health, accident, and similar protection is not considered compensation.” Colorado has a similar law. Four states—Georgia, Kentucky, South Dakota and Wyoming—are silent on the degree or type of board compensation that may be paid.
The issue of direct compensation to credit union directors will be a hot topic and one worthy of discussion and consideration in 2017 and 2018. Over the years, the National Credit Union Administration has approved a number of methods to assist boards in addressing what some call “in-kind” compensation. Some of the expenses or in-kind compensation that NCUA has found to be permissible are well known (such as reasonable travel reimbursement) while others are less publicized.
For example, NCUA has broadened its views of director compensation for FCUs to include such items as a $250 gift card to recognize five years of service; “small” gifts to an official’s share account; long-term care insurance; training costs and expense reimbursement for nonvoting members; reimbursement for electronic equipment and Internet access; direct purchase of health insurance; reimbursement of meals; travel expenses; educational programs and conferences; insurance relating to disease-specific health insurance; and extension of health benefits to immediate family members. These determinations are often accompanied by an NCUA letter to credit unions or a letter from the Office of General Counsel. Over the years such pronouncements have received broad coverage. Credit unions are directed to carefully review the special NCUA letters rather than relying on a general list.
A sizable number of state Legislatures have considered the issue of direct or indirect compensation for state-chartered credit union boards, and the list of states approving compensation for directors is growing. Credit unions should check with their legal counsel, but a preliminary review of state law indicates that the following states, to one extent or another, seem to allow direct cash compensation for those who serve on the board of a state-chartered credit union: Arizona, Colorado, Georgia, Indiana, Kentucky, Maryland, Minnesota, Nevada, New Jersey, North Dakota, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Washington, Wisconsin and Wyoming. Georgia permits credit unions to compensate the members of their boards. Virginia law, on the other hand, specifically permits state-chartered credit unions to provide health, accident and term-life protection for directors, but prohibits compensation.
The disparity between federal and state law has resulted in some extensive discussions and even seminars about the possibility of a federally chartered credit union converting to a state-chartered, federally insured credit union. The discussions have often been heated. As a credit union attorney with Kaufman & Canoles, I have served on the board of a federal credit union and found that work to be personally satisfying. Helping others has always been a fundamental goal of the credit union industry, but as they say, “the times they are a-changin’.” As boards build tenure, the question of recruiting new directors arises. Will cash compensation be the answer? The jury is still out on question.
For the time being, it would appear that the most attractive in-kind compensation in 2017 and 2018 will continue to be reimbursement for travel and educational conferences or trips. These programs are enlightening, educational and thought-provoking. I have been a speaker with EduCruises, which combines travel on a cruise ship with a detailed credit union program. And of course CUES offers a wide range of online educational programs (including its new Elite Access Virtual Classroom) and in-person offerings.
Is this type of compensation sufficient to recognize directors’ work, or will the trend be toward converting to state charters and cash compensation? Stay tuned, as this topic will likely be addressed by the new administration, the new NCUA Board and state Legislatures, and in credit union board rooms across the country.
E. Andrew Keeney is a nationally recognized credit union attorney and Co-Chair of Kaufman & Canoles’ Credit Union Team. He has been committed to the representation of credit unions for more than three decades. In addition to serving as the in-house counsel for State Department Federal Credit Union and Pentagon Federal Credit Union, Andy has represented many credit unions, leagues and associations as well as NCUA. Keeney is a frequent lecturer on a wide variety of credit union topics and a featured contributor to many credit union publications.
