November 18, 2005

Lawrence G. Gallagher, Esq.

150 N. Michigan Avenue

Suite 2700

Chicago, Illinois 60601

Re: Payout Priority of Deferred Compensation Claims

in Involuntary Liquidations.

Dear Mr. Gallagher:

You have asked if deferred compensation constitutes "wages and salaries"
as that term is used in NCUA's regulation regarding payment priorities
in involuntary liquidations. No, deferred compensation is not "wages and
salaries" but is in the same payment category with general creditors.

NCUA is an independent federal agency that has a number of roles. NCUA
is the chartering authority for federal credit unions (FCUs) and,
through the National Credit Union Share Insurance Fund (NCUSIF),
provides share account insurance to all FCUs and, following application
to and approval by NCUA, to federally-insured state chartered credit
unions (FISCUs). 12 U.S.C. §§1754, 1781-1790d. Share insurance provided
by NCUSIF is backed by the full faith and credit of the United States.

The full faith and credit of the United States only applies to NCUA\'s
obligations in its capacity as an agency. The full faith and credit of
the United States does not back the obligations of credit unions. As
discussed below, when acting as a liquidating agent and obliged to pay
the obligations of a liquidated credit union, NCUA does so from the
assets of the liquidated credit union. As an agency, however, NCUA has
no liability for the claims of creditors of FCUs or FISCUs.

NCUA has the authority to place FCUs and FISCUs into liquidation. 12
U.S.C. §1787. As liquidating agent for an insolvent, federally-insured
credit union, NCUA succeeds to all rights, titles, powers and privileges
of the credit union by operation of law. 12 U.S.C. §1787(b)(2); 12
C.F.R. §709.2. As liquidating agent, NCUA is authorized to \"realize
upon the assets of the credit union.\" 12 U.S.C. §1787(b)(2)(E). The FCU
Act specifically provides for NCUA as liquidating agent to determine
claims against the credit union, prescribe by regulation procedures for
the determination of claims, and make a distribution of credit union
assets. 12 U.S.C. §1787(b)(3), (4) and (11). NCUA\'s obligation to pay
insured deposits exists under legal authority that is separate and apart
from its role as liquidating agent. 12 U.S.C. §1787(d), (k).

When paying creditor claims in an involuntary liquidation, NCUA as
liquidating agent adheres to payout priorities established by
regulation. 12 C.F.R. §709.5. The payout priorities of Part 709 of
NCUA's regulations parallel those the FDIC has established. 12 C.F.R.
§360.3. Part 709 is the exclusive regulatory mechanism for insolvent,
federally-insured credit unions to liquidate. Secured creditors receive
their security first. 12 C.F.R. §709.5(a). To the extent a secured
creditor\'s claim exceeds the value of his security, it has an unsecured
claim against the credit union. 12 C.F.R. §709.5(b)(5).

Unsecured claims against the liquidation estate are prioritized in nine
categories. 12 C.F.R. §709.5(b). The first four categories cover
administrative costs and expenses of the liquidation; wages and
salaries, including vacation, severance, and sick leave pay; taxes due
and owing; and debts due and owing to the United States, including NCUA.
The fifth category is for general creditors and secured creditors to the
extent their respective claims exceed the value of their security for
those claims. The sixth through ninth categories cover claims of owners
of capital and the NCUSIF.

You are particularly interested in which category claims for employee
deferred compensation would fall. For purposes of this discussion,
"deferred compensation" generally refers to a promise made by an
employer to make remunerative payment(s) to an employee in a subsequent
or ensuing taxable year of the employee, regardless of whether the
employee's rights to that payment are vested or nonvested. Claims for
employee deferred compensation fall into the fifth category for general
creditors and secured creditors to the extent their respective claims
exceed the value of their security. 12 C.F.R. §709.5(b)(5). Employee
deferred compensation does not fall into the second category, which
includes claims for wages and salaries, including vacation, severance,
and sick leave pay. 12 C.F.R. §709.5(b)(2). NCUA's long standing view is
that the second category pertains only to [current]{.underline} wages
and salaries, and does not include deferred compensation.

Please feel free to contact Staff Attorney Frank Kressman or me with any
questions or if we can be of further assistance.

Sincerely,

Sheila A. Albin

> Associate General Counsel

GC/FSK:bhs

05-0816