Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Proposed Rules 43801 

recommended assessment rate of $0.463 

per standard box or equivalent should 

provide $9,260,000 in assessment 

income. The Committee determined 

assessment revenue would be adequate 

to fully cover budgeted expenditures for 

the 2018–2019 fiscal period, with any 

excess funds used to replenish the 

Committee’s monetary reserve. Reserve 

funds would be kept within the amount 

authorized in the Order. 

A review of historical information and 

preliminary information pertaining to 

the upcoming fiscal year indicates that 

the average grower price for the 2018– 

2019 season should be approximately 

$800 per ton of fresh pears. Therefore, 

the estimated assessment revenue for 

the 2018–2019 fiscal period as a 

percentage of total grower revenue 

would be about 2.6 percent. 

This proposed action would increase 

the assessment obligation imposed on 

handlers. While assessments impose 

some additional costs on handlers, the 

costs are minimal and uniform on all 

handlers. Some of the additional costs 

may be passed on to growers. However, 

these costs would be offset by the 

benefits derived by the operation of the 

Order. In addition, the Committee’s 

meetings were widely publicized 

throughout the Oregon and Washington 

fresh pear industry. All interested 

persons were invited to attend the 

meetings and participate in Committee 

deliberations on all issues. Like all 

Committee meetings, the May 31, 2018, 

meeting was a public meeting and all 

entities, both large and small, were able 

to express views on this issue. Finally, 

interested persons are invited to submit 

comments on this proposed rule, 

including the regulatory and 

information collection impacts of this 

action on small businesses. 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

Chapter 35), the Order’s information 

collection requirements have been 

previously approved by the OMB and 

assigned OMB No. 0581–0189 Fruit 

Crops. No changes in those 

requirements would be necessary 

because of this action. Should any 

changes become necessary, they would 

be submitted to OMB for approval. 

This proposed rule would not impose 

any additional reporting or 

recordkeeping requirements on either 

small or large Oregon and Washington 

fresh pear handlers. As with all Federal 

marketing order programs, reports and 

forms are periodically reviewed to 

reduce information requirements and 

duplication by industry and public 

sector agencies. 

AMS is committed to complying with 

the E-Government Act, to promote the 

use of the internet and other 

information technologies to provide 

increased opportunities for citizen 

access to Government information and 

services, and for other purposes. 

USDA has not identified any relevant 

Federal rules that duplicate, overlap, or 

conflict with this proposed rule. 

A small business guide on complying 

with fruit, vegetable, and specialty crop 

marketing agreements and orders may 

be viewed at: http://www.ams.usda.gov/ 

rules-regulations/moa/small-businesses. 

Any questions about the compliance 

guide should be sent to Richard Lower 

at the previously mentioned address in 

the FOR FURTHER INFORMATION CONTACT

section. 

List of Subjects in 7 CFR Part 927 

Marketing agreements, Pears, 

Reporting and recordkeeping 

requirements. 

For the reasons set forth in the 

preamble, 7 CFR part 927 is proposed to 

be amended as follows: 

PART 927—PEARS GROWN IN 

OREGON AND WASHINGTON 

■ 1. The authority citation for 7 CFR 

part 927 continues to read as follows: 

Authority: 7 U.S.C. 601–674. 

■ 2. Section 927.236 paragraphs (a) and 

(b) are revised to read as follows: 

§ 927.236 Fresh pear assessment rate. 

On and after July 1, 2018, the 

following base rates of assessment for 

fresh pears are established for the Fresh 

Pear Committee: 

(a) $0.463 per 44-pound net weight 

standard box or container equivalent for 

any or all varieties or subvarieties of 

fresh pears classified as ‘‘summer/fall’’; 

(b) $0.463 per 44-pound net weight 

standard box or container equivalent for 

any or all varieties or subvarieties of 

fresh pears classified as ‘‘winter’’; and 

* * * * * 

Dated: August 22, 2018. 

Bruce Summers, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2018–18552 Filed 8–27–18; 8:45 am] 

BILLING CODE 3410–02–P 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1231 

RIN 2590–AA72 

Golden Parachute and Indemnification 

Payments 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is proposing to amend 

its rule on golden parachute payments 

to better align the rule with areas of 

FHFA’s supervisory concern and reduce 

administrative and compliance burdens. 

The current rule requires FHFA review 

and consent before a regulated entity or 

the Office of Finance (OF) enters into an 

agreement to make, or makes, a payment 

that is contingent on the termination of 

an affiliated party, if the regulated entity 

or OF is in a troubled condition, in 

conservatorship or receivership, or 

insolvent. FHFA’s experience 

implementing the rule indicates that the 

rule requires review of some agreements 

and payments where there is little risk 

of excess or abuse, and thus that it is too 

broad. 

If amended as proposed, the rule 

would focus on the types of agreements 

and payments that are of greater 

supervisory concern to FHFA. In 

general, these are 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. The proposed amendments 

would also revise and clarify 

definitions, exemptions, and procedures 

to implement FHFA’s supervisory 

approach. Where possible, FHFA would 

also align procedures and outcomes of 

review under the Golden Parachute 

Payment Rule with requirements of 

FHFA’s rule on executive 

compensation. FHFA expects 

implementation of these changes would 

result in reduced administrative and 

compliance burdens. 

DATES: Comments must be received by 

October 12, 2018. 

ADDRESSES: You may submit your 

comments on the proposed rule, 

identified by regulatory information 

number (RIN) 2590–AA72, by any one 

of the following methods: 

• Agency website: www.fhfa.gov/ 

open-for-comment-or-input. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by email to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by FHFA. Include the 

following information in the subject line 

of your submission: Comments/RIN 

2590–AA72. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 


daltland on DSKBBV9HB2PROD with PROPOSALS
43802 Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Proposed Rules 

1The ‘‘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 Office of Finance (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 OF, unless OF is otherwise 

expressly addressed. 

2Section 4518(e) was based on a similar 

provision added to the Federal Deposit Insurance 

Act (FDI Act) in 1990, at 12 U.S.C. 1828(k). FHFA 

considers the legislative history of Section 1828(k) 

as a resource for interpreting Section 4518(e). See 

generally, 36 Cong. Rec. H783 (daily ed. March 14, 

1990) and 136 Cong. Rec. H5882 (daily ed. July 30, 

1990). 

3 Id. sec. 4518(e)(1) and (2). 

4 73 FR 53356 (Sept. 16, 2008); see also 74 FR 

5101 (Jan. 29, 2009). 

5See id. at 30975 (June 29, 2009); see also 78 FR 

28452 (May 14, 2013). 

6See 79 FR 4400 (Jan. 28, 2014). 

7 78 FR at 28454; see also 79 FR at 4396. 

8 Id. 

RIN 2590–AA72, Federal Housing 

Finance Agency, Eighth Floor, 400 

Seventh Street SW, Washington, DC 

20219. Deliver the package at the 

Seventh Street entrance Guard Desk, 

First Floor, on business days between 9 

a.m. and 5 p.m. 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA72, 

Federal Housing Finance Agency, 

Eighth Floor, 400 Seventh Street SW, 

Washington, DC 20219. Please note that 

all mail sent to FHFA via U.S. Mail is 

routed through a national irradiation 

facility, a process that may delay 

delivery by approximately two weeks. 

For any time-sensitive correspondence, 

please plan accordingly. 

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. Comments 

FHFA invites comments on all aspects 

of the proposed rule and will take all 

comments into consideration before 

issuing a final rule. Copies of all 

comments will be posted without 

change, and will include any personal 

information you provide such as your 

name, address, email address, and 

telephone number, on the FHFA website 

at http://www.fhfa.gov. In addition, 

copies of all comments received will be 

available for examination by the public 

through the electronic rulemaking 

docket for this proposed rule also 

located on the FHFA website. 

II. 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 it 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.2

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.3 FHFA first adopted a Golden 

Parachute Payments rule in 2008 as an 

Interim Final Rule with Request for 

Comments, which became final in 

2009.4 In response to comments 

received on the Interim Final Rule, 

FHFA proposed amendments to the rule 

in 2009 and 2013.5 In response to 

comments received on those proposals, 

FHFA promulgated the current rule in 

2014.6

To ensure that FHFA has an 

opportunity to review and, if necessary, 

prohibit or limit golden parachute 

payments and agreements before they 

are made, the current rule prohibits all 

golden parachute payments and 

agreements that are not exempt from or 

permitted by the rule. Prohibited 

agreements or payments may be 

permitted by the Director after review. 

The rule defines terms, addresses 

payments that are exempt from the 

‘‘golden parachute payment’’ definition 

or are permitted by the rule, establishes 

a process for FHFA to determine the 

permissibility of any other golden 

parachute payment or agreement, and 

sets forth review factors used by the 

Director in that process. 

Because the rule applies equally to 

golden parachute payments and 

agreements, it requires FHFA to 

determine the permissibility of 

prohibited agreements before they are 

entered into and of prohibited payments 

before they are made. In most cases, this 

means that a troubled institution must 

request FHFA’s prior review and 

consent to a payment that would be 

made in accordance with an agreement 

to which FHFA has already consented. 

This ‘‘double approval’’ requirement 

was recognized by FHFA and 

commenters when the rule was 

proposed in 2013 and finalized in 

2014.7 FHFA noted then that it was an 

appropriate supervisory approach where 

conditions could change after the 

agreement was approved (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).8

In practice, that approach has resulted 

in FHFA’s receiving numerous requests 

for review of golden parachute 

payments and agreements. 

Narrowly drafted exemptions from the 

rule have also given 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 are not 

permitted to make severance payments 

to any employees—even small payments 

to low level employees—without FHFA 

review and consent. Likewise, an 

exemption for payments pursuant to a 

‘‘bona fide deferred compensation plan 

or arrangement’’ does not apply or is 

lost if the plan is established or 

amended in the one-year period prior to 

the time the regulated entity became a 

troubled institution, meaning such 

plans and any plan payments must be 

reviewed by FHFA. 

Based on FHFA’s review experience, 

FHFA has now determined that the 

scope of the current rule is too broad, 

insofar as it requires a troubled 

institution to request, and FHFA to 

review, agreements and payments where 

there is very little concern about an 

abusive or excessive payment or threat 

to the financial condition of the paying 

regulated entity, and little likelihood 


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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Proposed Rules 43803 

9Specifically, FHFA is required to prohibit any 

regulated entity from providing compensation to an 

executive officer that is not ‘‘reasonable and 

comparable with compensation for employment in 

other similar businesses . . . involving similar 

duties and functions.’’ 12 U.S.C. 4518(a). 

‘‘Compensation’’ is broadly defined by statute, and 

includes termination payments. Id. sec. 4502(6); see 

also 74 FR 26989, 26990 (June 5, 2009); 78 FR 

28442, 28443 (May 14, 2013); and 79 FR 4389 (Jan. 

28, 2014). In addition, the Enterprises may not enter 

into an agreement to provide any termination 

payment to an executive officer unless FHFA has 

approved the agreement in advance, after 

determining that it meets a comparability standard. 

12 U.S.C. 1452(h)(2) and 1723a(d)(3)(B). 

10Among other things, that rule requires the 

regulated entities to provide notice to FHFA prior 

to entering into any compensation arrangement 

with, or paying compensation to, any ‘‘executive 

officer,’’ including compensation in connection 

with an executive officer’s termination. The 

regulated entity may provide the compensation if 

FHFA affirmatively provides a non-objection or 

approval, or does not prohibit it, within a stated 

review period. 12 CFR 1230.3 and 1230.4. 11 12 U.S.C. 4518(e)(4)(A). 

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 has also determined 

that the current Golden Parachute 

Payments rule could be harmonized 

with other requirements related to the 

compensation of executive officers of 

the regulated entities, including 

termination payments.9 These 

requirements are implemented through 

a separate FHFA rule on executive 

compensation, at 12 CFR part 1230 (the 

Executive Compensation rule).10

FHFA’s experience in applying both 

rules to such termination payments has 

suggested areas where processes and 

outcomes can be aligned, avoiding the 

need to request or engage in separate 

reviews. 

Having considered FHFA’s statutory 

authority and its experience 

implementing the Golden Parachute 

Payments and Executive Compensation 

rules, FHFA is proposing to amend the 

Golden Parachute Payments rule to 

better balance FHFA’s supervisory 

concerns for golden parachute payments 

with the rule’s administration and 

compliance burdens. FHFA invites 

comments on all aspects of the proposed 

amendments and will take all comments 

into consideration. 

III. Summary of Proposed Amendments 

A. Overview 

In general, FHFA has higher 

supervisory concern for golden 

parachute payments to and agreements 

with executive officers than lower 

ranking employees, because executive 

officers hold positions of greater 

responsibility and influence within a 

company. FHFA also has a higher 

supervisory concern for agreements, and 

in particular for broad-based agreements 

or plans such as severance plans, than 

for a subsequent payment in accordance 

with a plan or agreement. A broad-based 

agreement or plan typically covers 

numerous employees, bases the amount 

to be paid on criteria such as job level 

or length of employment, and provides 

for payments based on the occurrence of 

stated events. When reviewing the plan, 

FHFA can assess whether proposed 

payments to employees as members of 

a defined class or group would be 

excessive for that class or group (for 

example, whether a severance payment 

determined by job level and length of 

service is excessive for that level and 

service term). In addition, FHFA can 

assess the cumulative impact on the 

regulated entity if the same event were 

to occur for many employees at the 

same time or over a short time span, 

resulting in a high aggregate payout (for 

example, a severance plan that provides 

payments on involuntary termination 

not for cause may result in a high 

aggregate payment for a significant 

reduction in force). Finally, FHFA has a 

higher supervisory interest in payments 

to employees where there is a concern 

that the employee may have engaged in 

wrongdoing that had a material effect on 

the financial condition of the regulated 

entity or in certain financial crimes, or 

may be substantially responsible for the 

regulated entity’s becoming a troubled 

institution. Review in such cases can 

inform FHFA of the employee’s possible 

conduct and whether additional 

supervisory action may be appropriate. 

To better reflect these supervisory 

policies, FHFA proposes to amend the 

rule to distinguish agreements from 

payments, executive officers from other 

affiliated parties, and affiliated parties 

for whom there is a concern about 

wrongdoing from those for whom there 

is not. Generally, the amended rule 

would require a troubled institution to 

obtain prior review of and consent for 

(1) most agreements with and payments 

to executive officers; (2) most 

agreements with employees who are 

below the executive officer level 

(including plans covering such 

employees); and (3) most payments to 

employees who are below the executive 

officer level, where the regulated entity 

has concerns that the employee may 

have engaged in certain types of 

wrongdoing. 

FHFA has also reviewed the current 

rule for clarity and has determined that 

several changes could make it easier to 

understand and apply. These include 

relocating exempt payments and 

agreements, which do not require FHFA 

review or consent, from the rule’s 

definitions section to its substantive 

provisions and changing rule 

terminology that could be confusing. 

FHFA also considered consistency with 

the treatment of compensation 

agreements with and payments to 

executive officers under the Executive 

Compensation rule, because the 

Executive Compensation and Golden 

Parachute Payment rules can overlap in 

some cases. FHFA expressly desires to 

align procedures and outcomes where 

possible, thereby further reducing 

administrative and compliance burdens. 

B. Golden Parachute Agreements and 

Payments Subject To Review 

FHFA proposes to retain the rule’s 

current approach and require FHFA 

review of golden parachute agreements 

and payments unless they are expressly 

permitted by the rule. This framework 

serves to notify a troubled institution 

that, if an agreement or payment is not 

exempt from the definition of ‘‘golden 

parachute payment’’ or permitted by the 

terms of the rule, then the troubled 

institution must obtain FHFA’s consent 

prior to entering into the agreement or 

making a payment. 

Fundamentally, the current approach 

requires an understanding of the scope 

of the ‘‘golden parachute payment’’ 

definition—whether an agreement or 

payment is subject to review under the 

rule first turns on whether it is covered. 

In that regard, FHFA is clarifying its 

interpretation of ‘‘golden parachute 

payment’’ and proposing some 

amendments to the rule definition. 

First, the statutory definition 

addresses payments (including 

agreements) ‘‘in the nature’’ of 

compensation.11 FHFA interprets this 

phrase to expand upon the meaning of 

‘‘compensation’’ and to include 

payments that are not traditionally 

understood as wages earned or money 

paid for services performed by an 

employee in connection with 

employment. As one example, FHFA 

interprets ‘‘golden parachute payment’’ 

to include individually negotiated 

settlement agreements and associated 

payments. There the amount paid may 

involve potential damages from claims 

arising out of the employment 

relationship and so may relate to 

compensation, though it may also 

include valuation of litigation risk, 

reputation risk, and other costs and fees. 

The current rule definition addresses 

any ‘‘golden parachute payment’’ that is 

‘‘contingent on the termination of [a 

party’s] affiliation with the regulated 

entity’’ (as the statute provides) as well 


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43804 Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Proposed Rules 

12Compare id. sec. 4518(e)(4)(A)(i) and 12 CFR 

1231.2. 

13 12 U.S.C. 4518(e)(4)(A). 

14See generally, 12 U.S.C. 4511(b)(2), 4513(a)(1), 

4513b, and 4526. 

15 Id. sec. 4518(e)(4)(B); see also 12 CFR 1231.2. 

16See generally, 11 U.S.C. 547. 

as any such payment that is ‘‘by its 

terms payable on or after’’ 

termination.12 The latter phrase was 

added when the rule was first adopted 

to address the possibility of a regulated 

entity’s evading a ‘‘golden parachute 

payment’’ by simply making a payment 

to a party after, but not contingent on, 

termination. 

However, some payments received 

after termination, such as payments that 

would have been provided to the 

employee during the employment 

period had an intervening event 

(termination) not occurred, do not 

become ‘‘golden parachute payments’’ 

merely because of the timing of 

payment. Two examples of such 

payments are the last payment of earned 

salary and cashed out accrued but 

unused vacation benefits. FHFA has 

provided these interpretations to 

troubled institutions in the past, but has 

not previously published them. To 

avoid suggesting that the timing of a 

payment alone—on or after 

termination—causes the payment to be 

a ‘‘golden parachute payment,’’ and to 

ensure an appropriate nexus between 

the occurrence of termination and the 

golden parachute payment, FHFA 

proposes to replace the phrase ‘‘by its 

terms is payable on or after termination’’ 

with the phrase ‘‘is contingent on or 

provided in connection with’’ 

termination. FHFA requests comment 

on this proposed amendment. 

FHFA is also proposing other 

amendments to the rule definition. As 

noted above, the statutory ‘‘golden 

parachute payment’’ definition covers 

both payments and agreements to make 

payments, clearly permitting FHFA to 

prohibit or limit both an agreement to 

make a payment and, separately, the 

payment itself. FHFA now proposes to 

amend the rule to establish outcomes or 

treatments that depend on whether a 

troubled institution is entering into an 

agreement to make a golden parachute 

payment or is making a payment. In 

contrast, the current rule definition of 

‘‘golden parachute payment’’ follows 

the form of the statutory definition, 

which includes within ‘‘golden 

parachute payment’’ both payments and 

agreements and thus makes it difficult 

to address one in a manner distinct from 

the other. FHFA now proposes to 

remove reference to ‘‘any agreement’’ 

from the rule’s ‘‘golden parachute 

payment’’ definition and use the terms 

‘‘golden parachute payment agreement’’ 

or ‘‘agreement to make a golden 

parachute payment’’ when specifically 

referring to such agreements. This 

amendment is not intended to change 

the scope of the rule, which will 

continue to cover both golden parachute 

agreements and payments. FHFA is also 

proposing a definition of an 

‘‘agreement’’ to make a golden 

parachute payment, which is intended 

to be broad and clarify that the term 

includes broad-based plans such as 

severance plans, as well as agreements 

that are individually negotiated with an 

affiliated party. 

FHFA also proposes to remove the 

phrase ‘‘pursuant to an obligation of the 

regulated entity or the Office of 

Finance’’ from the rule’s ‘‘golden 

parachute payment’’ definition. The 

statutory definition addresses payments 

that are ‘‘pursuant to an obligation’’ of 

the regulated entity, made by the 

regulated entity when it is a troubled 

institution.13 FHFA’s current rule 

definition reflects the statute and 

includes reference to an ‘‘obligation’’— 

but where Section 4518(e) clarifies that 

FHFA’s authority to prohibit or limit 

payments includes those made pursuant 

to an obligation, using the phrase 

‘‘pursuant to an obligation’’ within the 

rule could be construed as limiting its 

application to payments that a troubled 

institution is contractually obligated to 

make. This is not FHFA’s intention. 

FHFA’s experience implementing the 

current rule has been that the 

overwhelming majority of golden 

parachute payments are the subject of 

an ‘‘obligation.’’ However, FHFA does 

not interpret Section 4518(e) or its 

current rule as impeding FHFA’s ability 

to prohibit or limit improper payments 

that are not pursuant to an ‘‘obligation.’’ 

As safety and soundness supervisor for 

the regulated entities, FHFA could 

always prohibit (or limit) improper gifts 

or contributions to an affiliated party,14

and it is inconsistent with the policy of 

Section 4518(e) to interpret it or FHFA’s 

implementing rule as permitting 

excessive or abusive payments that are 

made gratuitously, not pursuant to an 

obligation. Indeed, FHFA has 

interpreted the current rule as covering 

gifts, and troubled institutions have 

requested FHFA’s review of and consent 

to proposed retirement gifts. 

Nonetheless, FHFA requests comment 

on its proposal to remove the phrase 

‘‘pursuant to an obligation of the 

regulated entity or the Office of 

Finance’’ from the rule definition of 

‘‘golden parachute payment.’’ 

FHFA also notes that the statutory 

and rule definitions include any 

payment that would be a ‘‘golden 

parachute payment’’ but for the fact it 

was made before the paying regulated 

entity became a troubled institution, if 

the payment was made ‘‘in 

contemplation of’’ becoming a troubled 

institution.15 FHFA is proposing to 

amend the rule to include a rebuttable 

presumption that any payment that 

would otherwise be a ‘‘golden parachute 

payment,’’ made within the 90-day 

period prior to a regulated entity’s 

becoming a troubled institution, is made 

‘‘in contemplation of’’ and thus will be 

treated as a ‘‘golden parachute 

payment.’’ FHFA proposes the 

timeframe of 90 days prior because the 

events that would cause a regulated 

entity to become a troubled institution— 

becoming in troubled condition (which 

the rule defines with reference to 

examination ratings of 4 or 5 or 

initiation of certain enforcement 

actions), appointment of FHFA as 

conservator or receiver, or becoming 

insolvent—usually are not events that 

occur suddenly, without any prior 

awareness by the regulated entity of its 

deteriorating condition and FHFA’s 

increasing supervisory concern. FHFA 

also finds support for a 90-day 

timeframe in the federal bankruptcy 

code, where a somewhat analogous 

provision would permit the avoidance 

of certain transfers made within 90 days 

prior to the filing of a bankruptcy 

petition.16

Since the presumption is rebuttable, a 

regulated entity need not request review 

of any agreements or payments made 

within the 90-day period where there is 

a reasonable basis for concluding that 

such agreements or payments were not 

made ‘‘in contemplation of’’ becoming a 

troubled institution. On the other hand, 

FHFA also expects that if a regulated 

entity took a more conservative 

approach and sought FHFA review of 

agreements and payments made during 

the 90-day period, the actual number of 

review requests would not increase 

materially. Pursuant to its obligations 

for oversight of executive compensation, 

FHFA must review agreements with and 

payments to executive officers 

regardless of their timing relative to the 

regulated entity’s becoming a troubled 

institution. There may be a slight 

increase in the number of requests for 

review of plans or agreements with 

other employees, but FHFA review and 

consent in those cases could be 

stabilizing to the regulated entity as it 

works to improve its condition (because 

employees may be reassured that any 

promised payments on termination 

would be permissible even if the 


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17 12 U.S.C. 4518(e)(4)(A)(ii). 

18These payments may be subject to other rules, 

however. For example, the Executive Compensation 

rule generally requires the regulated entities to 

provide notice to FHFA prior to providing 

compensation to an executive officer, and requires 

FHFA to prohibit compensation that does not meet 

a statutory ‘‘reasonable and comparable’’ standard. 

Payments (or agreements to make payments) that 

are exempt from the ‘‘golden parachute payment’’ 

definition could be—and likely would be— 

‘‘compensation’’ for purposes of the Executive 

Compensation rule. 

19See generally, 81 FR 64357 (Sept. 20, 2016) 

(FHFA Notice of Proposed Rulemaking on 

indemnification payments). 

20 12 U.S.C. 4518(e)(4)(C)(ii). 

21 12 CFR 1231.2. 

condition of the regulated entity 

continued to deteriorate). 

FHFA is proposing one change to the 

‘‘golden parachute payment’’ definition 

to improve its readability. Currently, the 

statute defines ‘‘golden parachute 

payment’’ with reference to a regulated 

entity that has experienced a triggering 

event: The regulated entity is in 

troubled condition (as defined by FHFA 

by regulation); FHFA has been 

appointed conservator or receiver for 

the regulated entity; or the regulated 

entity has become insolvent.17

Following the form of the statute, the 

rule incorporates the listed triggering 

events, including ‘‘troubled condition,’’ 

into its definition of ‘‘golden parachute 

payment.’’ Separately, the rule defines 

‘‘troubled condition.’’ 

This rule construct has the effect of 

dividing the triggering events between 

two definitions and also makes it 

difficult to refer to a regulated entity 

that has experienced a triggering event. 

FHFA proposes to amend the ‘‘golden 

parachute payment’’ definition to cover 

payments made by a regulated entity 

that is, or is in contemplation of 

becoming, a ‘‘troubled institution,’’ and 

proposes to add ‘‘troubled institution’’ 

as a newly defined term that will list all 

of the triggering events, including those 

that previously defined ‘‘troubled 

condition.’’ The current rule’s definition 

of ‘‘troubled condition’’ would be 

removed. FHFA believes that this 

approach would continue to meet the 

statutory requirement that FHFA define 

‘‘troubled condition’’ by regulation, but 

would result in a rule that is easier to 

understand. 

FHFA requests comment on the 

preceding proposed amendments to the 

‘‘golden parachute payment’’ definition. 

C. Exempt Agreements and Payments 

Agreements and payments that are 

exempt from the ‘‘golden parachute 

payment’’ definition are not subject to 

the Golden Parachute Payment rule.18

Because statutory exemptions are 

presented as exemptions from the 

‘‘golden parachute payment’’ definition 

and because that definition covers both 

agreements and payments, FHFA 

interprets statutory exemptions 

expressed in terms of payments as 

extending to both the payment and any 

agreement to make it. As noted above, 

however, FHFA is now proposing to 

remove reference to any ‘‘agreement’’ 

from the ‘‘golden parachute payment’’ 

definition, which could imply that an 

exemption for a specific type of 

payment is operative only as to the 

payment, and that an agreement to make 

an exempt payment is not, itself, 

exempt. FHFA is clarifying here that an 

exemption for a payment extends to any 

plan or agreement to make that 

payment. The proposed rule text 

supports this interpretation, as it would 

prohibit an agreement to make a 

‘‘golden parachute payment’’ and, 

conversely, would not prohibit any 

agreement to make a payment that is not 

a ‘‘golden parachute payment,’’ i.e., a 

payment that is exempted from the 

‘‘golden parachute payment’’ definition. 

FHFA is also clarifying that it 

interprets the statutory ‘‘golden 

parachute payment’’ definition as not 

covering indemnification payments. 

Thus, rule provisions on golden 

parachute payments and agreements do 

not apply to indemnification payments. 

Generally, it may be possible to 

construe indemnification payments as 

‘‘golden parachute payments,’’ through 

interpretation of the phrase ‘‘in the 

nature of compensation’’ (where an 

indemnification payment arises from 

the party’s affiliation with a regulated 

entity and would reimburse the 

affiliated party for expenses he would 

otherwise bear) and application of the 

current rule definition to payments 

made after an affiliated party’s 

affiliation is terminated (where a 

termination agreement could include 

the troubled institution’s promise of 

indemnification in future actions arising 

from the party’s affiliation). FHFA also 

notes, however, that payment of 

indemnification is contingent on a legal 

action and, similar to a last salary 

payment after termination, is an 

expense that could have been incurred 

and paid during the period of affiliation. 

Thus, FHFA does not view either 

indemnification agreements covering 

payments to be made, or actual 

indemnification payments that are 

made, after termination as ‘‘contingent 

on termination.’’ 

FHFA also observes that Section 

4518(e) addresses ‘‘indemnification 

payments’’ separately from ‘‘golden 

parachute payments’’ but does not 

exempt such payments from the 

statutory ‘‘golden parachute payment’’ 

definition. FHFA interprets this 

construct as demonstrating the 

assumption that it was not necessary to 

exempt indemnification payments 

because those types of payments were 

never viewed as within the ‘‘golden 

parachute payment’’ definition. Thus, 

instead of reading Section 4518(e) as 

carving out from the ‘‘golden parachute 

payment’’ definition only the subset of 

‘‘indemnification payments’’ that 

Section 4518(e) expressly addresses, 

FHFA believes it is more plausible that 

Section 4518(e) applies separately to 

golden parachute payments and 

indemnification payments, such that 

‘‘golden parachute payment’’ should not 

be construed to cover indemnification 

payments in general. Indemnification in 

actions brought by the agency are 

covered by the indemnification rule 19; 

other indemnification is covered by the 

agency’s corporate governance rule and 

the applicable corporate law to which 

that rule points. 

FHFA is addressing this interpretation 

in the preamble rather than the rule to 

avoid suggesting that indemnification 

payments are ‘‘golden parachute 

payments.’’ Specifically, FHFA believes 

that amending the rule to exempt or 

permit indemnification payments and 

agreements would imply such payments 

are ‘‘golden parachute payments,’’ 

which is not what FHFA intends. FHFA 

requests comment on this interpretation, 

and on the decision to address it in the 

preamble as an interpretation, instead of 

through a rule amendment. 

Beyond that interpretation, FHFA 

proposes to amend exemptions 

currently set forth in the rule. FHFA 

proposes amendments to exemptions for 

any ‘‘bona fide deferred compensation 

plan or arrangement,’’ certain tax 

qualified retirement or pension plans, 

and ‘‘benefit plans.’’ FHFA also 

proposes to remove an exemption for 

nondiscriminatory severance pay plans 

or arrangements and to make a minor 

change to a separate exemption for other 

severance or similar payments. Finally, 

FHFA proposes to retain without change 

an exemption for payments made 

because of the affiliated party’s death, or 

termination caused by disability. 

‘‘Bona fide deferred compensation 

plans or arrangements.’’ Section 4518(e) 

exempts ‘‘any payment made pursuant 

to a bona fide deferred compensation 

plan or arrangement’’ that the Director 

determines, by regulation or order, to be 

‘‘permissible.’’ 20 The current rule 

implements this provision with an 

exemption for deferred compensation 

plans or arrangements that meet certain 

conditions.21 One condition—that the 


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22 Id. 23On an ad hoc basis, under the current rule 

FHFA has consented to subsequent payments at the 

same time as it consented to a plan or agreement. 24See 12 U.S.C. 1452(h)(2), 1723a(d)(3)(B), and 

4518(a). Indeed, for the Enterprises, an agreement 

to make a payment or provide benefits to an 

executive officer in connection with termination of 

employment is statutorily prohibited unless FHFA 

approves it in advance, after making a 

determination that the payments and benefits are 

comparable to those for officers of other public and 

private entities involved in financial services and 

housing interests with comparable duties and 

responsibilities. Id. sec. 1452(h)(2) and 

1723a(d)(3)(B). 

25See generally, 12 CFR part 1230. 

26 12 U.S.C. 4518(e)(4)(C). 

27 12 CFR 1231.2. 

28 Id. 

29See 26 U.S.C. 280G; see also 26 CFR 1.280G– 

1. Legislative history of the FDI Act provision on 

which Section 4518(e) was modeled indicates that 

the FDI Act definition of ‘‘golden parachute 

payment’’ was informed by an IRC provision on 

‘‘excess parachute payments’’ at 26 U.S.C. 280G, 

where a ‘‘parachute payment’’ is defined in part as 

‘‘any payment in the nature of compensation . . . 

if such payment is contingent on’’ a change in the 

ownership or effective control of the corporation. 

See H.R. 4268 (unenacted) 101 Cong. (2nd Sess. 

1990) and 136 Cong. Rec. H783 (daily ed. March 14, 

1990). 

plan or arrangement was in effect for at 

least one year prior to the regulated 

entity’s becoming a troubled 

institution—was intended to avoid 

exempting instances where a regulated 

entity acted to enrich its executives 

officers or other high ranking employees 

when it was in deteriorating condition 

(thereby potentially rewarding those 

who were best positioned to have 

avoided the financial problems, or 

draining resources that could be used to 

improve condition or be made available 

to creditors if necessary).22

In practice, failure to meet this 

condition has had the effect of 

eliminating the exemption for any 

otherwise ‘‘bona fide’’ deferred 

compensation plan that is established or 

amended by the regulated entity within 

the year prior to its becoming, or at any 

time when it is, a troubled institution, 

even if the plan or any amendment 

would not be objectionable to FHFA. 

Eliminating the exemption means that 

FHFA must review the revised plan and, 

even if FHFA determines the plan to be 

permissible, must also review all 

subsequent payments pursuant to it.23

This imposes administrative and 

compliance burdens on FHFA and a 

regulated entity that could be avoided 

by amending the exemption so that it 

would cover any plan that meets all of 

the exemption’s conditions other than 

the timing requirement, and that FHFA 

has reviewed and determined to be 

permissible. FHFA is now proposing 

that amendment, and requests 

comments on it. 

FHFA also notes that it has a separate 

statutory obligation to prohibit a 

regulated entity from providing 

compensation to an executive officer, 

including compensation in connection 

with termination of employment that is 

not reasonable and comparable with 

compensation for employment in other 

similar businesses involving similar 

duties and responsibilities.24 FHFA 

implements this obligation through its 

Executive Compensation rule, which 

requires a regulated entity to provide 

advance notice to FHFA prior to 

entering into certain deferred 

compensation agreements with, or 

making certain deferred compensation 

payments to, executive officers.25

Because FHFA is statutorily required to 

prohibit a regulated entity from 

providing compensation to an executive 

officer if it is not reasonable and 

comparable, FHFA review and approval 

of (or non-objection to) a deferred 

compensation plan covering executive 

officers is an effective pre-condition to 

application of the Golden Parachute 

Payments rule exemption. In other 

words, for executive officers, only those 

plans or other agreements that FHFA 

determines are reasonable and 

comparable could be exempt from the 

Golden Parachute Payments rule; plans 

or agreements that FHFA determines are 

not reasonable and comparable must be 

prohibited, without regard to any 

exemption from the Golden Parachute 

Payments rule. 

Certain tax qualified retirement or 

pension plans. Section 4518(e) includes 

a statutory exemption for ‘‘any payment 

made pursuant to a retirement plan 

which is qualified (or intended to be 

qualified) under [section 401 of the 

Internal Revenue Code (IRC)].’’ 26 The 

rule includes this exemption and 

expands on it, to include any payment 

made ‘‘pursuant to a pension or other 

retirement plan that is governed by the 

laws of any foreign country.’’ 27 FHFA is 

not aware of any pension or retirement 

plan of any regulated entity that is or 

would be governed by the laws of any 

foreign country. Further, were FHFA to 

determine that a pension or retirement 

plan of any of its regulated entities is 

‘‘governed by the laws of any foreign 

country,’’ FHFA would like to better 

understand the requirements of the 

governing law when considering the 

application of the Golden Parachute 

Payment rule to such a plan 

(understanding that, in the event a 

foreign law applied and required a 

payment, it may not be feasible to 

prohibit a troubled institution from 

making it). For these reasons, FHFA 

proposes to remove the rule’s exemption 

for such payments. FHFA requests 

comments on the impact, if any, to the 

regulated entities of removing this 

exemption. 

Benefit plans. Section 4518(e)’s 

exemption related to qualified 

retirement plans continues, stating that 

it also applies to payments made 

pursuant to ‘‘other nondiscriminatory 

benefit plan[s].’’ On its face, this 

provision is a statutory exemption for 

‘‘nondiscriminatory benefit plans’’ other 

than the tax qualified plans already 

expressly exempted. Beyond that, 

however, Section 4518(e) does not 

address the types of benefit plans 

intended to be outside the scope of a 

‘‘golden parachute payment.’’ 

FHFA’s current rule exempts any 

‘‘benefit plan’’ and, separately, any 

‘‘severance pay plan’’ that meets certain 

conditions and is 

‘‘nondiscriminatory.’’ 28 To inform its 

understanding of the statutory 

exemption, FHFA has researched 

relevant legislative history and statutory 

provisions, including provisions of the 

IRC on the specified tax qualified plans. 

While that review did not reveal any 

generally accepted definitions of 

‘‘nondiscriminatory’’ and ‘‘benefit 

plan,’’ it did suggest an interpretive 

approach that would look, in part, to 

whether a plan or program is a 

‘‘nondiscriminatory employee plan or 

program’’ for purposes of IRC provisions 

on excess parachute payments. 

Specifically, FHFA is proposing to 

exempt from the ‘‘golden parachute 

payment’’ definition any employee plan 

or program that is a ‘‘nondiscriminatory 

employee plan or program’’ in 

accordance with Internal Revenue 

Service (IRS) rules and published 

guidance interpreting 26 U.S.C. 280G.29

Similar to Section 4518(e), IRC section 

280G addresses parachute (termination) 

payments: It generally prohibits 

corporations from deducting as 

compensation that portion of a 

parachute payment due to change in 

control that is ‘‘excess,’’ and establishes 

rules for determining any such ‘‘excess’’ 

portion. Those rules permit a 

corporation to exclude from the 

‘‘parachute payment’’ calculation any 

amounts that the corporation establishes 

by clear and convincing evidence are (1) 

‘‘reasonable’’ compensation for services 

that were rendered on or after the date 

of the change in control and (2) 

compensation that was not contingent 

on the change in control. IRS 

regulations interpreting Section 280G 

state that the fact that payments were 

received pursuant to a 

‘‘nondiscriminatory employee plan or 

program’’ is clear and convincing 


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30 26 CFR 1.280G–1, Q/A26(c). 

31 In that regard, if FHFA has previously reviewed 

a specific plan and determined it to be ‘‘usual and 

customary’’ under the current rule, then that plan 

is exempt under the current rule and that 

exemption will be grandfathered under the rule if 

amended, unless the plan is materially amended. If 

a plan is materially amended, it will be viewed as 

if the regulated entity is discontinuing the exempt 

plan and establishing a new one, which would then 

be subject to the requirements and procedures of 

the rule as amended. 

32See, e.g., 26 U.S.C. 79(d), where the 

nondiscrimination test considers, among other 

factors, provision of the benefit to ‘‘key’’ employees, 

defined with reference to title and level of 

compensation; and sec. 129, where the test 

considers the relative compensation of eligible 

participants (highly compensated employees and 

non-highly compensated employees) and average 

level of benefits provided to highly compensated 

employees relative to non-highly compensated 

employees. 

evidence that the compensation was 

reasonable and not contingent on 

change in control, and list those 

employee plans and programs that are 

‘‘nondiscriminatory.’’ 30 FHFA now 

proposes to exempt any employee plan 

or program that is ‘‘nondiscriminatory’’ 

for purposes of IRC Section 280G from 

the definition of ‘‘golden parachute 

payment.’’ FHFA believes that this 

proposal will clarify those plans and 

programs that are exempt because they 

are ‘‘nondiscriminatory’’ and is 

consistent with the intention of Section 

4518(e). 

In conjunction with this amendment, 

FHFA is proposing to remove an 

exemption for ‘‘usual and customary 

[benefit] plans such as dependent care, 

tuition reimbursement, group legal 

services or cafeteria plans’’ and to add 

whether a benefit plan is ‘‘usual and 

customary’’ to the factors for the 

Director’s consideration when reviewing 

requests for consent to a plan. Thus, a 

regulated entity would be required to 

seek FHFA’s consent for a benefit plan 

that is not otherwise exempt from the 

rule, and FHFA could determine the 

plan to be permissible after considering, 

among other factors, whether the plan is 

‘‘usual and customary.’’ FHFA believes 

this change will not materially affect the 

operation of the rule regarding such 

plans for two reasons. First, because the 

rule’s current exemption relies on the 

characterization of a plan as ‘‘usual and 

customary,’’ troubled institutions have 

sought FHFA’s concurrence that specific 

plans are considered ‘‘usual and 

customary,’’ which has resulted in a de 

facto review and consent process.31

Similarly, under the proposal, a 

regulated entity could request FHFA’s 

review of and consent to a plan that is 

‘‘usual and customary.’’ Second, most of 

the plans listed in the current rule as 

examples of ‘‘usual and customary 

plans’’ are included within the list of 

‘‘nondiscriminatory employee plans and 

programs’’ for purposes of IRC Section 

280G. If a benefit plan that would 

previously have been exempt as a 

‘‘usual and customary’’ plan meets the 

IRC standard for ‘‘nondiscriminatory,’’ 

then that plan would now be exempt on 

the basis that it is ‘‘nondiscriminatory.’’ 

Distinguishing between exempt 

‘‘nondiscriminatory employee plans and 

programs’’ and plans that FHFA may 

permit as a matter of discretion because 

they are usual and customary (among 

other considerations) appears to align 

more closely with the language of 

Section 4518(e). Under this approach, a 

‘‘nondiscriminatory employee plan or 

program’’ will be exempt even if it is not 

‘‘usual and customary.’’ 

FHFA also recognizes that there may 

be benefit plans that are 

nondiscriminatory, but are not included 

within the IRS list of 

‘‘nondiscriminatory employee plans and 

programs.’’ Because Section 4518(e) 

exempts all ‘‘nondiscriminatory benefit 

plans’’ from the ‘‘golden parachute 

payment’’ definition, FHFA is proposing 

to amend its process for requests for 

review to expressly address a request for 

an exemption for any other ‘‘benefit 

plan’’ that the regulated entity believes 

is ‘‘nondiscriminatory.’’ In that case, the 

regulated entity would be permitted to 

submit a single request that includes a 

request for exemption, in which the 

regulated entity must address the basis 

for its assertion that the plan is 

‘‘nondiscriminatory,’’ and a request for 

consent. Based on the information in 

that submission, FHFA would 

determine if the plan is 

‘‘nondiscriminatory;’’ if so, it would be 

exempt, and if not, FHFA would then 

determine whether it should 

nonetheless be a permissible golden 

parachute agreement. FHFA proposes 

this approach to better implement 

Section 4518(e)’s express exemption for 

‘‘other nondiscriminatory benefit plans’’ 

and to reduce burdens on the regulated 

entity. 

A regulated entity could request an 

exemption for any benefit plan it 

believes is ‘‘nondiscriminatory.’’ FHFA 

is proposing to remove the rule’s current 

definition of ‘‘nondiscriminatory’’ and 

is not proposing to establish a new 

definition. The current definition is 

applicable only to ‘‘severance pay 

plans’’ as defined in the rule, and it is 

not clear that any single 

‘‘nondiscriminatory’’ definition would 

be appropriate for all types of plans. 

Having one definition for all plans may 

mistakenly result in some plans being 

treated as if they are subject to the rule, 

where in fact they should be exempt 

because they are ‘‘nondiscriminatory.’’ 

FHFA also believes that considering 

whether a particular plan is 

nondiscriminatory in conjunction with 

the plan’s design and purpose would 

aid FHFA in carrying out the purposes 

of Section 4518(e). 

Nonetheless, FHFA believes that the 

rule’s current definition of 

‘‘nondiscriminatory’’ identifies 

appropriate criteria for assessing 

discrimination, such as length of 

service, salary, total compensation, job 

grade, or classification. These criteria 

are similar to some used for IRS 

‘‘nondiscriminatory employee plans and 

programs.’’ 32 When a regulated entity 

requests an exemption for a 

‘‘nondiscriminatory’’ benefit plan, it 

will be required to demonstrate how the 

plan operates to achieve a 

nondiscriminatory outcome, where the 

discrimination of concern is between 

groups or classes of employees, and 

higher level or more highly 

compensated employees are 

disproportionately advantaged over 

lower level or less highly compensated 

employees. In particular, a plan that 

provides disproportionately greater 

benefits to some employees based solely 

or primarily on level or position within 

a regulated entity (or any proxy for level 

or position such as total salary or total 

compensation, job grade, or 

classification) would not likely be 

determined ‘‘nondiscriminatory’’ by 

FHFA. Differences in the level of 

benefits provided based on other 

objective criteria such as length of 

service, or on level or position in 

combination with such other criteria, 

may be nondiscriminatory. 

Finally, the current rule’s definition 

of ‘‘benefit plan’’ includes (and thus 

exempts from the ‘‘golden parachute 

payments’’ definition) those ‘‘employee 

welfare benefit plans’’ as defined by 

section 3(1) of the Employee Retirement 

Income Security Act of 1974 (ERISA), at 

29 U.S.C. 1002(1). FHFA is not 

proposing to amend this exemption, 

though it would be relocated. 

FHFA understands that some ERISA 

employee welfare benefit plans must 

meet statutory nondiscrimination tests, 

and thus are exempt from the ‘‘golden 

parachute payment’’ definition by the 

express terms of Section 4518(e). FHFA 

also believes that many such plans are 

simply not covered by the statutory 

‘‘golden parachute payment’’ definition. 

Specifically, though the benefit 

provided to the employee—the 

opportunity to participate in such a 

plan—is ‘‘in the nature of 

compensation,’’ FHFA believes it is 

unlikely that benefit is ‘‘contingent on 


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33 12 CFR 1231.2. 

34 Id. § 1231.3(b). 

35 12 U.S.C. 4518(e)(4); see also id. sec. 4502(11). 

36Compare 12 U.S.C. 4502(11) and 12 CFR 

1231.2. 

37Section 4518(e) and 12 CFR part 1231 also 

address ‘‘indemnification payments,’’ the statutory 

definition of which also uses the term ‘‘affiliated 

party.’’ See 12 U.S.C. 4518(e)(5)(A); see also 81 FR 

64357 (Sept. 20, 2016). If part 1231 is amended as 

proposed, the term ‘‘affiliated party’’ would be used 

throughout the rule, but it would be defined 

differently depending on whether the payment is an 

indemnification payment or a golden parachute 

payment. 

the [employee’s] termination of . . . 

affiliation with the regulated entity.’’ 

Instead, FHFA believes it is more likely 

that such benefits are provided based on 

the condition of employment 

(affiliation) but may continue after 

termination, either through the terms of 

the actual employee welfare benefit 

plan, or through the terms of a 

severance agreement. In the latter 

instance, FHFA would construe the 

benefit as contingent on termination. 

Because severance pay plans or 

agreements are not exempt from the 

golden parachute payment definition, 

however, FHFA would have the 

opportunity to review those agreements 

or plans, including any extended 

employee welfare benefits they provide. 

FHFA requests comment on all 

aspects of its proposed amendments to 

the rule’s current treatment of ‘‘benefit 

plans’’; the proposed process for 

requesting either an exemption, for a 

plan believed to be 

‘‘nondiscriminatory,’’ or consent, if 

FHFA determines that a plan is not 

‘‘nondiscriminatory’’; removal of the 

rule’s current definition of 

‘‘nondiscriminatory’’; and its treatment 

of employee welfare benefit plans. 

Nondiscriminatory severance pay 

plans or arrangements. FHFA is also 

proposing to remove from the rule an 

exemption for severance pay plans that 

meet the rule definition of 

‘‘nondiscriminatory’’ and other 

conditions. Implementing the current 

rule resulted in FHFA’s reviewing the 

severance pay plans of troubled 

institutions and, based on that 

experience, FHFA has determined as a 

matter of supervisory policy that 

severance pay plans should be subject to 

review. 

FHFA review of troubled institution 

severance pay plans was required 

because these plans did not meet the 

current rule’s ‘‘nondiscriminatory’’ 

definition and thus were not exempt. 

Instead, troubled institutions requested 

FHFA’s consent to such plans, and 

FHFA made decisions applying the 

rule’s consideration factors. FHFA has 

determined this review is very useful for 

assessing the potential or intended 

impact of the plan on the troubled 

institution, given its specific 

circumstances. Where the plan covers a 

described event, e.g., involuntary 

termination not for cause, that entitles 

employees to severance pay and that 

could occur for many employees at the 

same time or close in time, the troubled 

institution may be subject to making a 

higher, aggregated payout. That same 

event—numerous involuntary 

terminations not for cause, happening 

close in time—may be appropriate to 

address a financial weakness, however. 

Likewise, 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. Because the circumstances 

and strategies of each troubled 

institution would likely be different, 

severance pay plans with different terms 

and structures could be appropriate. 

For these reasons, FHFA believes that 

these plans should be reviewed, as a 

result of which they may be permitted— 

or even deemed exempt, if determined 

to be nondiscriminatory based on a 

request for exemption by the troubled 

institution. FHFA notes that severance 

pay plans are not currently included in 

the IRS list of ‘‘nondiscriminatory 

employee plans and programs,’’ but also 

that it is possible for the list to evolve 

to include them through amendments to 

the IRC or IRS interpretation. In that 

case, severance pay plans that meet 

specifically applicable IRC or IRS 

‘‘nondiscrimination’’ requirements 

would be exempt from the FHFA rule 

without the need for an exemption 

request. This treatment is consistent 

with FHFA’s proposed approach to 

applying Section 4518(e)’s statutory 

exemption for ‘‘other nondiscriminatory 

benefit plans.’’ 

FHFA requests comment on the 

proposed removal of the current rule’s 

exemption for severance pay plans that 

are ‘‘nondiscriminatory’’ and meet other 

conditions. 

Other severance or similar payments 

required by state or foreign law. The 

current rule also includes an exemption 

for certain severance or similar 

payments that are required to be made 

by state statute or foreign law.33 As with 

the rule’s exemption for payments made 

pursuant to pension or other retirement 

plans ‘‘governed by the laws of any 

foreign country,’’ described above, 

FHFA is not aware of any severance or 

similar payments that any regulated 

entity would be required to make by 

foreign law. Were FHFA to determine a 

severance or similar payment was 

required by a foreign law, FHFA would 

like to better understand the 

requirements of that law when 

considering the application of the 

Golden Parachute Payments rule to such 

a payment (again, understanding that if 

a foreign law applied and required a 

payment, that it may not be feasible to 

prohibit a troubled institution from 

making it). For these reasons, FHFA 

proposes to remove the rule’s exemption 

for such payments, and requests 

comments on the impact to the 

regulated entities of removing it. 

D. ‘‘Executive Officers’’ and Other 

‘‘Affiliated Parties’’ 

Under the current rule, agreements 

and payments that are within the 

definition of ‘‘golden parachute 

payment’’ may be permitted, either by 

operation of the rule or after review and 

consent by FHFA.34 Although that 

approach would continue if the rule is 

amended as proposed, whether an 

agreement or payment is permitted by 

operation of the rule (meaning, without 

review and consent by FHFA) could 

now turn on whether it is provided to 

an ‘‘executive officer’’ or another type of 

‘‘affiliated party.’’ Proposals related to 

those definitions are addressed below. 

As a technical matter, however, FHFA is 

first proposing a change to the rule’s 

terminology, specifically, to change the 

term ‘‘entity-affiliated party’’ to 

‘‘affiliated party.’’ 

Section 4518(e) defines a ‘‘golden 

parachute payment’’ in part as a 

payment, including an agreement to 

make a payment, to an ‘‘affiliated 

party.’’ ‘‘Affiliated party’’ is not defined 

by statute, though a similar statutory 

term, ‘‘entity-affiliated party,’’ used 

primarily in the context of FHFA’s 

enforcement authority, is defined.35

FHFA considered the statutory 

definition of ‘‘entity-affiliated party’’ 

when interpreting ‘‘affiliated party’’ and 

uses the term ‘‘entity-affiliated party’’ in 

the current rule, although the rule 

definition of ‘‘entity-affiliated party’’ is 

different from the statutory definition.36

‘‘Entity-affiliated party’’ is also used and 

defined in FHFA’s rules of practice and 

procedure, at 12 CFR part 1209. To 

avoid confusion and because Section 

4518(e) uses the term ‘‘affiliated party,’’ 

FHFA is proposing to change the term 

‘‘entity-affiliated party’’ to ‘‘affiliated 

party’’ throughout part 1231. 

FHFA is also proposing substantive 

changes to the definition of ‘‘affiliated 

party’’ for purposes of rule provisions 

related to ‘‘golden parachute 

payments.’’ 37 For the most part, the 

current rule does not establish different 

treatments or outcomes based on the 


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38 12 CFR 1231.2. 

39 12 U.S.C. 4502(11). 

40See 74 FR at 30976 and 78 FR at 28456. 

41See 12 CFR 1230.2. 

42 Id. 

43 Id. Enterprise executive officers are the 

chairman and vice chairman of the board of 

directors, the chief executive officer, chief financial 

officer, chief operating officer, president, any 

executive vice president, any senior vice president, 

any individual in charge of a principal business 

unit, division, or function, and any individual who 

performs functions similar to such positions 

whether or not the individual has an official title. 

Bank executive officers are the president, the chief 

financial officer, and the three other most highly 

compensated officers. OF executive officers are the 

chief executive officer, chief financial officer, and 

chief operating officer. In all cases, ‘‘executive 

officer’’ includes any other officer identified by the 

Director. 

party to whom a golden parachute 

payment could be made, but applies in 

kind to each defined ‘‘entity-affiliated 

party.’’ One provision—an exemption 

for payments made pursuant to 

nondiscriminatory severance pay plans 

(which FHFA has proposed to remove 

for other reasons, set forth above)—does 

not apply to any ‘‘executive officer’’ 

whose annual base salary exceeds a 

stated amount. Within that provision, 

‘‘executive officer’’ is defined by 

reference to FHFA’s Executive 

Compensation Rule. Because FHFA now 

proposes to amend the rule to more 

broadly distinguish the treatment of 

executive officers from the treatment of 

other ‘‘entity-affiliated parties,’’ FHFA is 

also proposing to more generally 

incorporate in this rule the definition of 

‘‘executive officer’’ from FHFA’s 

Executive Compensation rule. 

FHFA has also identified other issues 

with the rule definition of ‘‘entityaffiliated party’’ that it proposes to 

address. Specifically, for the regulated 

entities, the current rule includes 

parties to whom it is unlikely that 

excessive or abusive termination 

payments would be made. For OF, the 

current rule defines ‘‘entity-affiliated 

party’’ more narrowly than for FHFA’s 

regulated entities. 

If amended as proposed, the 

definition of ‘‘affiliated party’’ for 

purposes of golden parachute payments 

would cover all employees, officers, and 

directors of a regulated entity or OF, and 

any other party the Director, by 

regulation or on a case-by-case basis, 

determines to be participating in the 

conduct of the affairs of a regulated 

entity or OF. For the regulated entities, 

as applied to golden parachute 

payments, the ‘‘affiliated party’’ 

definition would be narrower on its face 

but its potential scope would not 

change, as it would retain the ‘‘catchall’’ that permits FHFA to deem parties 

other than directors, officers and 

employees to be ‘‘affiliated parties.’’ For 

OF, the amended definition would be 

broader. Each of these proposed changes 

is described below. 

‘‘Affiliated parties’’ of the regulated 

entities. The statutory definition of 

‘‘entity-affiliated party’’—any 

controlling stockholder for, or agent of, 

any regulated entity; any shareholder, 

affiliate, consultant, or joint venture 

partner of a regulated entity; any 

independent contractor (including an 

attorney, appraiser or accountant) who 

meets certain conditions; and any notfor-profit corporation that receives its 

principal funding from a regulated 

entity—is largely incorporated into the 

current rule definition of ‘‘entityaffiliated party.’’ While it could be 

appropriate in some instances to treat 

any listed party as an ‘‘affiliated party,’’ 

FHFA does not believe it is likely that 

these parties would receive payments 

that are contingent on their termination 

or that are abusive or excessive, and 

thus does not believe it is necessary to 

treat each of them as an ‘‘affiliated 

party’’ as a matter of course. This is 

particularly true since the rule, like the 

statute, includes a ‘‘catch-all’’ provision 

for ‘‘any other person that the Director 

determines, by regulation or on a caseby-case basis, to be participating in the 

conduct of the affairs of the regulated 

entity.’’ 38 That provision is a more 

flexible and targeted tool for ensuring 

that FHFA appropriately reviews 

payments by a troubled regulated entity 

that are contingent on the termination of 

the affiliation of a party who is not a 

director, an officer, or an employee. 

For these reasons, FHFA proposes to 

remove listed parties other than 

directors, officers, and employees from 

the rule’s definition. The ‘‘catch-all’’ 

provision would be retained, though it 

would be slightly amended to 

incorporate a provision of the current 

rule that states a member of a Bank shall 

not be deemed an ‘‘affiliated party’’ 

solely because it is a shareholder of, or 

obtains advances from, a Bank. 

‘‘Affiliated parties’’ of OF. The Safety 

and Soundness Act definition of 

‘‘entity-affiliated party’’ includes the 

Office of Finance.39 For purposes of the 

Golden Parachute Payments rule, 

however, FHFA determined that OF 

should be treated as if it were a 

‘‘regulated entity’’ (meaning, as if it 

were the paying party, instead of the 

party receiving payment).40 This 

decision required FHFA to develop a 

rule definition of OF’s ‘‘entity-affiliated 

parties,’’ which currently covers any 

director, officer or manager of OF. It 

does not cover other OF employees or 

include the ‘‘catch-all’’ for parties 

participating in the conduct of OF’s 

affairs. 

FHFA continues to believe that OF 

should be treated as a ‘‘regulated entity’’ 

for purposes of golden parachute 

payments and agreements. FHFA does 

not believe OF employees should be 

outside the rule’s scope, however. There 

is no supervisory policy that supports 

excluding any OF employees and, 

further, no supervisory policy that 

supports a different definition of 

‘‘affiliated party’’ for OF than for the 

regulated entities. Thus, to ensure that 

OF is treated similarly to any ‘‘regulated 

entity’’ for purposes of the rule, FHFA 

proposes to remove the rule’s separate 

definition of ‘‘entity-affiliated party’’ for 

OF and to apply the same ‘‘affiliated 

party’’ definition, amended as described 

above, to any regulated entity and OF. 

This change expands the scope of the 

rule with regard to OF, as it would now 

cover OF employees and any other 

person the Director determines, by 

regulation or on a case-by-case basis, to 

be participating in the conduct of the 

affairs of OF. FHFA requests comment 

on these proposed changes. 

Definition of ‘‘executive officer.’’ To 

implement FHFA’s decision to 

distinguish some agreements or 

payments that are provided to an 

‘‘executive officer’’ from those that are 

provided to other ‘‘affiliated parties,’’ it 

is necessary to define ‘‘executive 

officer.’’ FHFA proposes to incorporate 

the definition of ‘‘executive officer’’ for 

purposes of its Executive Compensation 

rule, because the regulated entities and 

OF are familiar with that definition and 

FHFA intends that ‘‘executive officer’’ 

be defined consistently for the two 

rules.41

For the Enterprises and the Banks, the 

Executive Compensation rule’s 

definition of ‘‘executive officer’’ 

includes ‘‘any individual who performs 

functions similar to such positions, 

whether or not the individual has an 

official title’’ and, for any regulated 

entity and the OF, ‘‘any other officer as 

identified by the Director.’’ 42 Any 

individual or other officer who is 

considered an ‘‘executive officer’’ for 

purposes of the Executive 

Compensation rule would also be 

treated as an ‘‘executive officer’’ for the 

Golden Parachute Payments rule. 

FHFA further notes that the Executive 

Compensation rule establishes different 

‘‘executive officer’’ definitions for the 

Enterprises, the Banks, and OF.43 For 

the Enterprises, the rule definition is 

based on a Safety and Soundness Act 

definition that applies only to the 

Enterprises and includes two Enterprise 

directors: The chairman and vice 


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44 12 U.S.C. 4502(12). 

45 Id. sec. 4617(b)(2)(A) through (D). 46 Id. sec. 4617(i). 

47 Id. sec. 4617(i)(2)(C), providing that FHFA, in 

its discretion, may treat a limited-life regulated 

entity as a regulated entity in default at such times 

and for such purposes as FHFA determines. 

chairman of the board of directors.44

Because these Enterprise directors are 

treated as ‘‘executive officers’’ for 

purposes of the Safety and Soundness 

Act and the Executive Compensation 

rule, FHFA also proposes to treat them 

as ‘‘executive officers’’ for this rule. 

Other Enterprise directors, all directors 

of any Bank, and all directors of the OF 

would be treated as other affiliated 

parties, unless FHFA determines any 

such other director should also be 

treated as an ‘‘executive officer.’’ In 

practice, this means that, under the 

proposal, more agreements with and 

payments to directors (other than the 

Enterprises’ chairmen and vice 

chairmen) would be permitted by 

operation of the rule and thus could be 

made without FHFA prior review and 

consent (assuming certain conditions, 

which are discussed below, are met). 

FHFA also believes that it could be 

appropriate for any affiliated party to be 

treated as an ‘‘executive officer’’ for 

purposes of the Golden Parachute 

Payments rule, based on the affiliated 

party’s degree of influence or level of 

responsibility. For that reason, the 

proposal would allow the Director to 

designate any affiliated party as an 

‘‘executive officer’’ for purposes of the 

Golden Parachute Payments rule. FHFA 

anticipates basing such decisions on 

consideration of whether the affiliated 

party’s participation in the conduct of 

the affairs of the regulated entity is of 

such influence or responsibility that the 

party could materially affect decisions 

about termination payments or the 

financial condition of the regulated 

entity, or could engage in certain types 

of financial crimes (identified in the 

rule). 

FHFA expects to address whether a 

party who becomes an ‘‘affiliated party’’ 

as a result of the ‘‘catch-all’’ provision 

should be treated as an ‘‘executive 

officer’’ at the same time it determines 

to apply the ‘‘catch-all.’’ However, 

FHFA reserves the right to make a 

determination that an affiliated party 

should be treated as an ‘‘executive 

officer’’ for purposes of the rule at any 

time (in that case, the determination 

would not be applied retroactively, such 

that agreements or payments previously 

entered into or made could be in 

violation of the rule. Instead, FHFA 

would review future payments, 

including any agreement pursuant to 

which payment is made, as payments 

arise). 

FHFA requests comments on all 

aspects of its proposed definition of 

‘‘executive officer.’’ 

E. Permitted Agreements 

As previously noted, the approach of 

the current rule—that agreements and 

payments not exempted from the 

definition of ‘‘golden parachute 

payment’’ are prohibited unless they are 

permitted, either by operation of the 

rule or after review and consent by 

FHFA–would continue in the rule as 

proposed to be amended. To implement 

FHFA’s intention to distinguish the 

treatment of agreements from the 

treatment of payments in some cases, 

the rule would be amended to address 

agreements and payments separately. 

In addition, FHFA proposes to add 

three types of agreements that would be 

permitted by operation of the rule—(1) 

compensation arrangements (including 

plans or agreements) that are directed by 

FHFA exercising authority conferred by 

12 U.S.C. 4617, which covers FHFA’s 

conservatorship and receivership 

authorities and authorities with regard 

to any limited life regulated entity 

(‘‘LLRE’’)), (2) individually negotiated 

settlement agreements with affiliated 

parties who are not executive officers, 

where certain conditions are met, and 

(3) agreements to make payments to 

affiliated parties other than executive 

officers, where the amount of the 

payment is de minimis. FHFA also 

proposes to remove the current rule’s 

provisions for permissible agreements 

with persons hired to prevent a 

regulated entity from imminently 

becoming a troubled institution or 

materially improve the financial 

condition of a troubled institution and 

change in control agreements, which 

FHFA now proposes to address in 

conjunction with other severance 

agreements. These proposed 

amendments are addressed below. 

Plans directed by the Director. A 

regulated entity becomes a troubled 

institution for purposes of the Golden 

Parachute Payments rule if FHFA is 

appointed as its conservator or receiver 

(among other reasons). That 

appointment confers additional powers 

on FHFA: By operation of law, as 

conservator or receiver FHFA succeeds 

to the powers of the regulated entity’s 

board of directors and may operate the 

regulated entity, including establishing 

or directing the regulated entity to 

establish compensation plans and 

arrangements and to make provisions 

for payments on termination of 

employees.45

Appointment as receiver also 

authorizes or requires FHFA to organize 

an LLRE for the regulated entity in 

receivership.46 Although an LLRE is not 

in conservatorship or receivership, the 

Director has statutory discretion to use 

the agency’s conservatorship and 

receivership authority with respect to 

the LLRE to establish or direct the 

establishment of employee 

compensation plans and provide for 

termination payments.47

Where FHFA, exercising authority 

conferred by 12 U.S.C. 4617, acts to 

direct the establishment of a 

compensation arrangement by a 

regulated entity, including an LLRE, the 

Director’s consent to that arrangement is 

conveyed by the direction to establish it. 

For that reason, FHFA proposes to 

amend the Golden Parachute Payments 

rule to permit troubled institutions to 

make compensation plans or agreements 

that provide for termination payments 

to affiliated parties of a regulated entity 

without FHFA review, when such 

arrangements are established or directed 

by FHFA pursuant to authority 

conferred by 12 U.S.C. 4617. FHFA 

requests comments on this amendment. 

Individually negotiated settlement 

agreements. FHFA proposes to amend 

the rule to permit troubled institutions 

to enter into individually negotiated 

settlement agreements with affiliated 

parties other than executive officers 

without FHFA prior review and 

consent, where (1) the agreement 

resolves a claim by the affiliated party 

or avoids a claim that the troubled 

institution has a reasonable belief would 

be brought by the party, and involves 

payment to the affiliated party and the 

party’s termination; and (2) at the time 

the agreement is entered into, the 

regulated entity is reasonably assured, 

following due diligence appropriate to 

the level and responsibilities of the 

affiliated party, that the party has not 

engaged in certain types of wrongdoing. 

Individually negotiated settlement 

agreements with executive officers and 

other types of individually negotiated 

agreements with any affiliated party 

(such as, for example, an agreement 

with an employee to accelerate a 

retention award) would continue to 

require FHFA’s prior review and 

consent. 

This proposed amendment reflects 

FHFA’s interpretation, addressed above, 

that the ‘‘golden parachute payment’’ 

definition covers a settlement agreement 

involving payment to and termination of 

an employee of a troubled institution, as 

an agreement to make a payment ‘‘in the 

nature’’ of compensation. It also 

recognizes that such agreements with 


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48 12 CFR 1231.3(b)(1)(iv)(A) through (D). 

49 79 FR at 4397. 

lower ranking employees are not likely 

to involve payments that are excessive 

or abusive. Specifically, where a claim 

has been brought or a troubled 

institution reasonably believes one may 

be brought, the employee and the 

regulated entity have interests that are 

opposed. That opposition and the 

negotiation involved in reaching the 

settlement agreement provide some 

assurance that the agreement’s terms, 

including any negotiated payment, are 

not excessive or abusive but instead 

reflect a cost to the troubled institution 

that it reasonably believes is lower than 

would likely be incurred if the claim 

were litigated. 

Conversely, there is a somewhat 

higher supervisory concern that 

executive officers, who are better 

positioned to influence negotiations and 

decision-making and who could have 

built relationships with those in charge 

of negotiating or approving settlements, 

could receive payments through 

individually negotiated settlement 

agreements that do not fairly reflect an 

assessment of risk, potential damages, 

and associated costs, and thus that are 

excessive or abusive. On that basis, 

individually negotiated settlement 

agreements with executive officers 

would continue to be subject to review 

by FHFA. 

Limiting application of the 

amendment to ‘‘individually negotiated 

settlement agreements’’ requires 

defining that term. Consistent with the 

foregoing discussion, FHFA is 

proposing a definition that seeks to 

capture only those individually 

negotiated agreements that (1) settle a 

claim that an affiliated party has 

brought or avoid a claim the regulated 

entity reasonably believes the affiliated 

party would bring and (2) involve a 

settlement payment to the affiliated 

party, a release of claims by the party 

(and possibly the regulated entity), and 

the termination of the party’s affiliation 

with the regulated entity. As payment 

and termination are already included in 

the ‘‘golden parachute payment’’ 

definition, FHFA is not repeating them 

in its proposed definition of an 

‘‘individually negotiated settlement 

agreement.’’ FHFA intends the 

definition to cover those agreements 

where obtaining a settlement and 

release of claims significantly motivates 

negotiation between the regulated entity 

and the affiliated party, as distinguished 

from other individual agreements where 

a release of claims is an important but 

more incidental feature. FHFA requests 

comment on the proposed definition of 

‘‘individually negotiated settlement 

agreement.’’ 

In order for an individually negotiated 

settlement agreement to be permissible 

without FHFA prior review and 

consent, the regulated entity must be 

reasonably assured, at the time the 

agreement is entered into, that the 

affiliated party has not engaged in 

certain types of wrongdoing. The types 

of wrongdoing that a regulated entity 

must consider are set forth in the 

current rule and are not changing.48 To 

implement this condition, FHFA 

proposes to amend a certification 

requirement in the current rule that 

would otherwise apply. FHFA has 

identified issues with that requirement 

which it now proposes to address. 

Specifically, under the current rule a 

regulated entity submitting a request for 

FHFA review of a proposed golden 

parachute payment or agreement must 

‘‘demonstrate that it does not possess 

and is not aware of any information, 

evidence, documents, or other materials 

that would indicate that there is a 

reasonable basis to believe’’ that the 

person to whom payment would be 

made has engaged in any of the types of 

wrongdoing listed. This standard could 

imply that the regulated entity must 

have a high degree of certainty about the 

person’s actions, gained through 

considerable investigation, which may 

not be reasonable or, in some cases, 

even possible. For example, the current 

rule requires the regulated entity to 

provide certification when requesting 

review of an agreement, even where the 

parties to whom payment could 

ultimately be made are not known and 

would be expected to change over time 

(i.e., employees covered by a broadbased severance pay plan). In addition, 

because the current rule states that each 

request must include a certification that 

a regulated entity is not aware of 

information that would reasonably 

indicate the party has engaged in 

wrongdoing, it could imply that a 

regulated entity that is not able to make 

the certification may not request FHFA’s 

review and thus may not enter into the 

agreement or make the payment. This 

outcome was not intended, as the 

preamble that accompanied the current 

rule made clear.49 Indeed, a regulated 

entity may have concerns about 

wrongdoing that it desires to address 

through an individually negotiated 

settlement agreement to avoid litigation, 

and the rule is not intended to prevent 

this. 

To address these issues, FHFA 

proposes to amend the current rule’s 

certification requirement. First, FHFA is 

clarifying the standard that a requesting 

regulated entity must meet: It must be 

reasonably assured that the affiliated 

party has not engaged in wrongdoing 

listed in the rule, following appropriate 

due diligence. FHFA expects that the 

nature of the due diligence performed 

by a regulated entity will vary based on 

the opportunity of the affiliated party to 

engage in the types of wrongdoing 

listed, when considering the party’s 

affiliation, duties, functions, and 

privileges. It is possible that some 

affiliated parties would have no 

opportunity to engage in any listed 

wrongdoing, and in that case, simply 

noting an assessment of ‘‘no 

opportunity’’ could be sufficient. A 

regulated entity may make an 

affirmation or similar statement by the 

terminating affiliated party a component 

of its due diligence process. When an 

appropriate due diligence process does 

not give cause for concern that the 

affiliated party may have engaged in the 

rule’s listed types of wrongdoing, the 

‘‘reasonably assured’’ standard is met. 

The standard does not require a 

regulated entity to demonstrate or prove 

that the affiliated party has not engaged 

in wrongdoing. 

If the regulated entity determines that 

the ‘‘reasonably assured’’ standard is 

met, it may enter into an individually 

negotiated settlement agreement with an 

affiliated party other than an executive 

officer without FHFA’s review and 

consent. The regulated entity should 

retain records necessary to support its 

application of the standard in 

accordance with 12 CFR part 1235. If 

the regulated entity cannot meet the 

‘‘reasonably assured’’ standard, it must 

obtain FHFA’s consent to enter into the 

agreement. FHFA is also proposing to 

require any regulated entity 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 the 

individually negotiated settlement 

agreement. This requirement is intended 

to balance FHFA’s supervisory concern 

about the occurrence of wrongdoing 

listed in the rule with the desire of the 

regulated entity to resolve claims (or 

potential claims) by affiliated parties. 

FHFA requests comments on all 

aspects of its proposed amendments 

related to individually negotiated 

settlement agreements with affiliated 

parties who are not executive officers. 

Agreements to make de minimis 

golden parachute payments. FHFA is 

also proposing to amend the rule to 

permit a troubled institution to enter 

into an agreement to make a de minimis 


daltland on DSKBBV9HB2PROD with PROPOSALS
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50 28 U.S.C. 2461 note. This Act requires FHFA, 

among other agencies, annually to adjust the civil 

monetary penalties it may impose for inflation, in 

accordance with the Act’s requirements. 

51Consumer Price Index, Economic News 

Release, Bureau of Labor Statistics, United States 

Department of Labor, https://www.bls.gov/ 

news.release/cpi.toc.htm (last visited August 20, 

2018). The index levels can also be found in 

monthly press releases. See, e.g., Consumer Price 

Index Summary, United States Department of 

Labor, Bureau of Labor and Statistics, https://

www.bls.gov/news.release/cpi.nr0.htm. 

52See, Consumer Price Index Summary, United 

States Department of Labor, Bureau of Labor and 

Statistics (June 12, 2018), https://www.bls.gov/ 

news.release/archives/cpi_06122018.htm. 

53This number was created for purposes of the 

example. 

54For the avoidance of doubt, the calculations 

used for the example are as follows: (1) 257.119/ 

251.588 = 1.021984355. (2) 2500 * 1.02198355 = 

2554.960888. (3) Rounding of 2554.960888 to the 

nearest dollar produces $2,555. 

golden parachute payment to an 

affiliated party other than an executive 

officer without FHFA review and 

consent, and without conducting due 

diligence that the rule would otherwise 

require. The current rule does not 

distinguish agreements (or payments) 

based on amount, which has required 

troubled institutions to request FHFA 

review and consent even for agreements 

to make small golden parachute 

payments. Based on that experience, 

FHFA has determined that the burden of 

administration and compliance is not 

warranted, where the agreement would 

provide for a payment that is small and 

subject to a regulatory cap (thereby 

avoiding excessive or abusive payments 

or payments that would threaten the 

financial condition of the regulated 

entity) and is to be made to an affiliated 

party who is not an executive officer. In 

combination, FHFA believes these 

conditions support a reasonable 

presumption that the affiliated party 

either (1) was not in position to 

materially affect the financial condition 

of the regulated entity or engage in 

certain types of wrongdoing listed in the 

rule or (2) if the affiliated party was in 

such a position, that the payment does 

not settle a claim involving such 

wrongdoing. 

This amendment would apply to 

individually negotiated agreements as 

well as plans that cover multiple 

employees, including broad-based 

plans, if the agreement or plan provides 

for payment that does not exceed the de 

minimis amount. FHFA intends this 

treatment to control even where the 

agreement is of a type that is specifically 

addressed in the rule. For example, a 

troubled institution would be permitted 

to enter into an individually negotiated 

settlement agreement to make a de 

minimis settlement payment to an 

affiliated party who is not an executive 

officer without FHFA’s prior review and 

consent and without conducting due 

diligence related wrongdoing that is 

otherwise required by the rule. As the 

actual amount that a particular 

employee could receive may not be 

known until a payment obligation 

arises, agreements or plans that could 

result in an affiliated party receiving 

more than the de minimis amount 

would require FHFA’s prior review and 

consent. 

FHFA proposes $2,500 as the cap for 

a golden parachute payment that a 

troubled institution could agree to make 

without FHFA review and consent. 

While it is possible that a higher or 

lower amount could be supported, 

FHFA’s past experience indicates there 

is a significant likelihood that payments 

of $2,500 or less would permitted after 

review. 

The de minimis cap applies to all 

golden parachute payments in the 

aggregate to the same affiliated party. 

Therefore, if an individual affiliated 

party will or could receive more than 

one golden parachute payment and, in 

the aggregate, those payments could 

exceed the de minimis amount, then 

each of the payments would require 

FHFA review. For example, if a 

departing employee is to receive 

severance of $2,000, and the regulated 

entity also chooses to waive repayment 

of a small debt in the amount of $1,500, 

the troubled institution would be 

required to submit both agreements to 

FHFA for review. On the other hand, if 

a departing employee is receiving a 

severance payment of $1,500 and waiver 

of a debt repayment of $750, neither 

payment would require FHFA review 

because the total amount of $2,225 falls 

under the de minimis cap of $2,500. 

To ensure the specific de minimis 

amount remains appropriate over time, 

considering changes in the economy, 

FHFA is also proposing that the amount 

be increased for inflation in accordance 

with the formula and methodology used 

for the Federal Civil Penalties Inflation 

Adjustment Act Improvements Act of 

2015.50 For consistency with that Act, 

FHFA proposes to base the annual 

adjustment on the increase in the 

percentage, if any, by which the 

Consumer Price Index for all urban 

consumers (CPI–U) as published by the 

Department of Labor for the month of 

December exceeds the CPI–U for the 

month prior to the month of the final 

rule’s publication in the Federal 

Register, which would then be rounded 

to the nearest whole dollar.51 Thus, if 

the rule were published in June 2018, 

the CPI–U for the month prior to 

publication, May 2018, would be 

251.588.52 If a troubled institution were 

applying the rule’s $2,500 de minimis 

amount in June 2020, it would look to 

the monthly CPI–U published for 

December 2019. If the CPI–U index had 

risen to 257.119 in December 2019,53

the troubled institution would divide 

257.119 by 251.588 for a result of 

1.021984355. This means there has been 

a percentage increase of 2.1984355 

percent.54 The troubled institution 

would then increase the $2,500 de 

minimis amount by 2.1984355 percent 

(which is to multiply 2,500 by 

1.021984355) for a result of $2,554.96. 

This amount rounded to the nearest 

dollar would be $2,555. The de minimis 

amount in the entire calendar year of 

2020 would be $2,555. 

To facilitate use of the adjustment by 

troubled institutions, FHFA also 

proposes to permit troubled institutions 

to calculate it themselves and apply it 

accordingly. Thus, no action by FHFA 

would be required in order for a 

troubled institution to use an inflationadjusted dollar value. 

FHFA requests comment on all 

aspects of its proposed treatment of 

agreements to make de minimis golden 

parachute payments, including the 

aggregation of payments for purposes of 

calculating the de minimis amount and 

the proposed inflation adjustment. 

Employment agreements with 

turnaround specialists. FHFA identified 

issues with the scope and application of 

rule provisions on employment 

agreements with persons hired to help 

a regulated entity address its problems 

(‘‘turnaround specialists’’). Currently, 

the rule provides that an agreement 

made in order to hire a person to 

become an affiliated party either at a 

time when the regulated entity is, or in 

order to prevent it imminently from 

becoming, a troubled institution, is 

permissible provided that the Director 

consents to the terms and amount of the 

golden parachute payment. 

In addition, the current rule is not 

clear as to whether the Director’s 

consent to the terms and amount of 

payment is required when the 

agreement is entered into or could be 

provided later, at the time the payment 

is made. The reason for treating these 

employment agreements differently 

from other types of agreements is to 

facilitate the hiring of a turnaround 

specialist to address the regulated 

entity’s problems, when the regulated 

entity’s condition could be a 

disincentive to joining the company. In 

that light, FHFA believes review and 

consent at the time of agreement would 

provide greater assurance to the 


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55FHFA also notes that termination payments to 

executive officers would be deemed 

‘‘compensation’’ for purposes of the Executive 

Compensation rule. FHFA intends to coordinate its 

review of agreements to make such payments as 

required under each rule. 

regulated entity and the prospective hire 

that payments in connection with 

termination provided for in the 

agreement will be permitted. Review at 

the time of agreement also aligns with 

FHFA’s higher supervisory concern for 

agreements, relative to subsequent 

payments made pursuant to an 

agreement to which FHFA has 

consented. FHFA also observes that 

such agreements often anticipate the 

departure of the turnaround specialist 

when particular tasks are completed or 

benchmarks are met, and in that case, 

for a turnaround specialist hired as an 

executive officer, review of the 

agreement is consistent with statutory 

obligations that require FHFA to 

prohibit a regulated entity from 

providing compensation to an executive 

officer that is not reasonable and 

comparable and the Enterprises to 

obtain FHFA approval prior to entering 

into agreements that provide for 

payment in connection with the 

termination of an executive officer. 

Finally, the current rule does not 

make it clear how consent obtained at 

the time an agreement is entered into 

operates to trigger provisions of the rule 

if the regulated entity is not then a 

troubled institution. By statute, an 

agreement or payment is a ‘‘golden 

parachute payment’’ if it is made by a 

regulated entity when it is, or is in 

contemplation of becoming, a troubled 

institution. However, as noted above, 

the current rule does not address 

FHFA’s interpretation of ‘‘in 

contemplation of.’’ 

Several proposed revisions to the rule 

will address these issues. To clarify that 

FHFA intends to review any 

employment agreement with a 

turnaround specialist, FHFA is 

removing the rule’s current provision 

that permit such agreements. Within the 

rule’s general construct, agreements that 

are not permitted by operation of the 

rule cannot be entered into without 

FHFA’s review and consent; by 

removing the rule provision that makes 

such agreements permissible, FHFA is 

thus making them subject to its prior 

review. 

That change will operate in 

conjunction with other amendments 

related to payments that are described 

below. If those proposed amendments 

are adopted, a troubled institution will 

be required to obtain FHFA’s consent to 

the employment agreement, but could 

be permitted to make payment to a 

turnaround specialist without further 

review or consent, provided (1) the 

payment is in accordance with the 

agreement, (2) the Director provided 

consent to the subsequent payment 

when providing consent to the 

agreement, and (3) the troubled 

institution meets any other condition 

that the Director imposed when 

providing consent. This proposed 

treatment of payments could apply to 

any employee who is hired as a 

turnaround specialist, including an 

executive officer.55

In FHFA’s view, a regulated entity 

that hires a turnaround specialist to 

prevent it from imminently becoming a 

troubled institution could meet the ‘‘in 

contemplation of’’ criteria and, if so, 

would become subject to all of the rule’s 

provisions. It is also plausible that a 

regulated entity experiencing problems 

would seek FHFA’s consent to a 

proposed employment agreement as 

though it were a troubled institution, to 

reassure a prospective employee that the 

agreement would not be prohibited 

should the regulated entity’s condition 

deteriorate further. Nothing in the rule 

prevents this; where the rule requires a 

troubled institution to request FHFA’s 

consent to an agreement, it does not 

preclude a regulated entity that is not a 

troubled institution from doing so. 

FHFA notes, however, that consent to 

an agreement is contextual, and it may 

not be feasible to consent to an 

agreement as though it were a golden 

parachute agreement, if there appears 

little likelihood that the regulated entity 

would become a troubled institution in 

the reasonably near term. FHFA 

requests comment on this proposed 

approach, and on all aspects of its 

proposed treatment of employment 

agreement with turnaround specialists. 

Change in control agreements. FHFA 

is also proposing to remove from the 

rule a provision that addresses change 

in control agreements. Under the 

current rule, a troubled institution may 

enter into a change in control agreement 

that provides for a reasonable severance 

payment capped at the amount of the 

base salary paid to the employee in the 

previous 12 months without FHFA’s 

prior review and consent. A change in 

control agreement that provides for 

payment on termination in excess of the 

cap requires FHFA’s prior approval. 

Further, any change in control 

agreement that results from a regulated 

entity being placed into conservatorship 

or receivership also requires FHFA’s 

prior review and consent. 

The approach of the current rule, 

permitting some change in control 

agreements to be entered into without 

FHFA review, is not consistent with 

FHFA’s supervisory concern for 

agreements to make golden parachute 

payments, especially agreements to 

make payments to executive officers, or 

with FHFA’s interest in reviewing 

agreements that provide severance pay. 

For those reasons, FHFA proposes to 

treat a change in control agreement as it 

would any other agreement under the 

rule as proposed to be amended. Thus, 

for example, any individually 

negotiated change in control agreement 

(whether with an executive officer or 

another affiliated party) would require 

FHFA’s prior review and consent, as 

would any plan that included executive 

officers and provided for severance pay 

on a change in control. If a change in 

control agreement or plan provided for 

only a de minimis payment to an 

affiliated party other than an executive 

officer, then FHFA’s prior review and 

consent to the agreement would not be 

required. 

FHFA recognizes that a regulated 

entity may enter into agreements or 

establish severance pay plans that 

provide for payments on a change in 

control prior to the regulated entity 

becoming a troubled institution. A 

regulated entity does not violate the rule 

simply because FHFA has not provided 

consent to an agreement or plan that is 

in place at the time the entity becomes 

a troubled institution. FHFA anticipates 

that it would review such agreements or 

plans either at the time a regulated 

entity becomes a troubled institution or 

at the time a payment is proposed to be 

made. Since FHFA could then 

determine that the agreement or plan to 

make a golden parachute payment is not 

permissible, however, the regulated 

entities should address that 

contingency—possible future 

application of the rule—in their plans 

and agreements to avoid later 

contractual disputes. 

FHFA requests comments on its 

proposed amendment to remove the 

rule’s provision on change in control 

agreements and thereby require FHFA’s 

prior review and consent to change in 

control agreements and plans providing 

for golden parachute payments (other 

than a de minimis payment). 

F. Permitted Payments 

As is the case with golden parachute 

agreements, under the current rule a 

troubled institution may not make a 

golden parachute payment unless it is 

permitted by the rule or because the 

Director has consented to the payment 

after review. FHFA does not propose to 

change this general approach, but has 

identified some instances where it 

would be appropriate to permit 

payments to be made by operation of the 


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56A recent case rejected a claim that a taking for 

purposes of the Tucker Act, 28 U.S.C. 1491, can 

occur when FHFA prohibits a golden parachute 

payment, including 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 FHFA’s prohibition did 

not result in a taking because the affiliated party 

retained the ability to pursue a claim for damages 

from the regulated entity for breach of contract. 

FHFA agrees with the ruling that there was no 

taking, but observes that awarding damages in an 

action for breach of contract by an affiliated party 

against a regulated entity, where FHFA prohibits 

the regulated entity from making a golden 

parachute payment in accordance with its rule, 

would clearly defeat the purpose of Section 4518(e), 

which is to prevent the affiliated party from 

receiving such a payment. 

In contrast, the Court of Federal Claims had held 

in that case that no taking occurred (see Piszel v. 

U.S., 121 Fed. Cl. 793 (2015)) based on the lack of 

a sufficiently cognizable property interest in the 

context of the regulatory scheme (‘‘a heavily 

regulated environment’’) and the regulator’s express 

statutory authority (the Safety and Soundness Act 

in effect at the time of contract formation 

authorized FHFA’s predecessor agency to prohibit 

compensation it deemed to be unreasonable at any 

time, and nothing in the Act ‘‘guaranteed that the 

government could not later change its mind’’ after 

approving the compensation). That conclusion 

would, of course, 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. 

rule. These instances reflect the 

supervisory policies previously stated, 

that FHFA has a higher supervisory 

concern for agreements than for a 

subsequent payment made pursuant to a 

permitted agreement, and a higher 

concern for payments to executive 

officers than it does for similar types of 

payments when provided to lower 

ranking employees. 

To implement these policies, FHFA is 

proposing to permit a troubled 

institution to make a payment pursuant 

to a permitted individually negotiated 

settlement agreement to any affiliated 

party, including an executive officer, 

without further review and consent. 

This proposal acknowledges that the 

payment could be construed as essential 

consideration for the agreement, such 

that consent to the payment would be 

incorporated in the determination to 

permit an individually negotiated 

settlement agreement. 

FHFA is also proposing to clarify the 

Director’s authority to consent to any 

future payment to any affiliated party 

that would otherwise be subject to prior 

review, at the same time or after the 

Director consents to the plan or 

agreement pursuant to which the 

payment would be made, provided the 

payment is made in accordance with a 

permitted agreement (whether by 

operation of the rule or after FHFA 

review and consent) and meets any 

other conditions that the Director may 

establish. This authority has been 

implicit in the rule, and would now be 

explicit. 

FHFA is proposing to permit a 

troubled institution to make two other 

types of payments to affiliated parties 

who are not executive officers without 

FHFA review and consent. These are (1) 

de minimis payments and (2) payments 

above the de minimis amount that are 

made in accordance with a permitted 

agreement, where the troubled 

institution is reasonably assured, 

following appropriate due diligence, 

that the affiliated party has not engaged 

in wrongdoing of the types listed in the 

rule. 

Finally, FHFA is proposing to permit 

a troubled institution to provide small 

value gifts to executive officers to 

recognize significant, nonrecurring, life 

events (such as retirement) without 

FHFA’s review and consent. 

All golden parachute payments other 

than those permitted by operation of the 

rule would be subject to FHFA review 

and consent.56 As a result of the 

proposed amendments, which are 

discussed in more detail below, FHFA 

believes most payments to employees 

who are not executive officers would 

not require FHFA review and consent, 

while many payments to employees 

who are executive officers would. FHFA 

review and consent would be required 

for any payment to any affiliated party 

where there is a basis for concern that 

the party has engaged in wrongdoing of 

a type listed in the rule. 

Payments pursuant to permitted 

individually negotiated settlement 

agreements. FHFA proposes to permit 

any payment pursuant to a permitted 

individually negotiated settlement 

agreement, to be made without further 

FHFA review. FHFA has previously 

described permitted individually 

negotiated settlement agreements, 

whether by operation of the rule (in the 

case of an agreement with an affiliated 

party other than an executive officer, 

where the troubled institution is 

reasonably assured, after appropriate 

due diligence, that the party has not 

engaged in certain types of wrongdoing) 

or after FHFA review and consent (in 

the case of an agreement with any 

executive officer, or with an affiliated 

party where the troubled institution is 

not reasonably assured that the party 

had not engaged in certain types of 

wrongdoing). FHFA understands that 

the settlement payment could be 

essential consideration for the 

agreement, and that the agreement could 

be viewed as nonbinding if there were 

a question as to whether the payment 

would be allowed or could be 

prohibited. 

FHFA also recognizes that some 

timing issues could present interpretive 

questions. For example, an individually 

negotiated settlement agreement entered 

into before the regulated entity becomes 

a troubled institution, and when the 

regulated entity is not ‘‘in 

contemplation of’’ becoming troubled, 

could provide for future payments that 

may ultimately be made after the 

regulated entity becomes a troubled 

institution. In that case, FHFA would 

view the agreement as permitted for 

purposes of the rule, because at the time 

it was entered into, the rule did not 

apply to the agreement and thus it could 

not be ‘‘impermissible’’ in the rule’s 

context. Because the agreement would 

be deemed permitted, payments 

pursuant to it would also be permitted. 

Payments where consent was 

provided with consent to an agreement. 

With this provision, FHFA is making 

explicit authority that has been implied 

in the rule, that the Director can permit 

any golden parachute payment and thus 

can, as circumstances warrant, 

undertake the review process for a 

payment, or a set of payments, at the 

same time as review of an agreement. 

FHFA believes that there are instances 

where such consent could be 

appropriate as a matter of administrative 

efficiency and to reduce burden. For 

example, the Director may consent to a 

golden parachute payment when 

consenting to the agreement where the 

actual payment is expected to be made 

in a short timeframe. A regulated entity 

may request FHFA to consent to future 

payments, and FHFA may also 

determine that such consent is 

appropriate on its own initiative. 

Because other proposed amendments 

would permit a troubled institution to 

make most payments to affiliated parties 

other than executive officers without 

FHFA review, FHFA expects this 

provision would most often be used 

with regard to payments to executive 

officers. FHFA also expects that consent 

in such instances would impose the 

condition that the troubled institution 

make the payment only if, after 

appropriate due diligence, it is 

reasonably assured that the executive 

officer has not engaged in wrongdoing 

of the types listed in the rule. Other 

conditions could also be imposed, such 

as the condition that payment be made 

within a certain time period. A troubled 

institution should establish an 

appropriate compliance process to 

ensure any conditions imposed on 

making the payment are met. If the 

troubled institution is not able to meet 

the conditions, it may submit the 


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proposed payment to FHFA for review 

and consent. 

FHFA requests comment on its 

proposal addressing concurrent review 

of and consent to any agreement to 

make a golden parachute payment to an 

affiliated party and any subsequent 

payment and conditions that must be 

met for a troubled institution to make 

such a payment without further FHFA 

review and consent. 

De minimis payments to affiliated 

parties other than executive officers. 

Consistent with the foregoing proposal 

on permitted agreements, FHFA is 

proposing to permit a troubled 

institution to make a de minimis golden 

parachute payment to any affiliated 

party other than an executive officer, 

without FHFA review and consent and 

without the due diligence otherwise 

required by the rule. If the de minimis 

payment is pursuant to a permitted 

agreement, this provision confirms that 

making the payment does not trigger 

any required action on the part of the 

troubled institution or FHFA. If a de 

minimis payment is made without any 

agreement between the parties—which 

FHFA views as unlikely—then this 

provision also serves to clarify that an 

agreement is not required in order to 

make it; rather, it is the de minimis 

amount of the payment that establishes 

its permissibility. 

FHFA’s proposal related to de 

minimis payments does not apply to 

payments to executive officers. 

Considering the purposes of Section 

4518(e), FHFA believes that the majority 

of golden parachute payments to 

executive officers, even payments of 

relatively low amounts, should be 

subject to review. On the other hand, a 

proposed provision for small value gifts 

discussed below would apply to 

executive officers. As a result, a 

troubled institution would be permitted 

to provide a retirement gift to an 

executive officer without FHFA review, 

provided its value does not exceed the 

proposed small value cap. 

FHFA also notes that, while the rule 

would not require any due diligence 

prior to making a de minimis payment, 

other governing documents may 

condition payment on employee 

behavior. For example, a plan that 

provides for a modest termination 

payment to employees whose length of 

service does not qualify them for 

severance pay may establish the 

condition that the employee not be 

terminated for cause. FHFA’s proposal 

to relieve de minimis golden parachute 

payments from due diligence otherwise 

required by the rule does not impact 

conditions that are imposed by the 

terms of a plan or agreement. 

FHFA requests comment on its 

proposal to permit troubled institutions 

to make de minimis golden parachute 

payments to affiliated parties other than 

executive officers, without conducting 

due diligence otherwise required by the 

rule and without FHFA review. 

Payments pursuant to other permitted 

agreements, to affiliated parties other 

than executive officers. FHFA is 

proposing that payments made pursuant 

to permitted agreements other than 

individually negotiated settlement 

agreements, to an affiliated party other 

than an executive officer, and that 

exceed the de minimis amount, be 

permitted without further FHFA review 

provided the troubled institution is 

reasonably assured, following 

appropriate due diligence, that the 

affiliated party has not engaged in the 

types of wrongdoing listed in the rule. 

A payment in excess of the de minimis 

amount that is not pursuant to a 

permitted agreement, or where the 

troubled institution is not able to meet 

the ‘‘reasonably assured’’ standard, 

would require FHFA’s review and 

consent. 

Permitted agreements, the standard of 

‘‘reasonably assured,’’ and the standard 

of appropriate due diligence have been 

addressed above. Thus, the nature of 

due diligence performed will vary 

(based on the opportunity of the 

affiliated party to engage in the types of 

wrongdoing listed, considering the 

party’s affiliation, duties, functions, and 

privileges), and a regulated entity may 

make an affirmation or a similar 

statement by the affiliated party part of 

its due diligence process. When an 

appropriate due diligence process does 

not indicate a concern that the affiliated 

party may have engaged in the rule’s 

listed types of wrongdoing, the 

‘‘reasonably assured’’ standard is met, 

and the payment would be in 

accordance with a permitted agreement, 

then the troubled institution may make 

a golden parachute payment without 

FHFA review. The regulated entity 

should retain records necessary to 

support its decision in accordance with 

12 CFR part 1235. If the troubled 

institution cannot meet the ‘‘reasonably 

assured’’ standard, it must obtain 

FHFA’s consent to make the golden 

parachute payment. If the troubled 

institution concludes that the 

‘‘reasonably assured’’ standard is not 

met and elects not to make the payment, 

it would be required to provide notice 

of its concerns to FHFA. 

FHFA requests comment on all 

aspects of its proposed treatment of 

permitted payments to affiliated parties 

other than executive officers. 

Small value gifts to executive officers. 

With some limited exceptions, the 

current rule operates to require FHFA 

review of all golden parachute payments 

to executive officers. The proposed rule 

would generally take a similar 

approach, as it would establish only 

three instances where a golden 

parachute payment to an executive 

officer would not require FHFA review 

and consent: Payments pursuant to an 

individually negotiated settlement 

agreement, payments to which the 

Director consented when consenting to 

the agreement that provides for the 

payment (both discussed above), and 

small value gifts on the occurrence of a 

significant life event such as retirement. 

Specifically, FHFA is proposing to 

permit a troubled institution to provide 

a small value gift to an executive officer 

without FHFA review, where the gift is 

provided in recognition of a 

nonrecurring life event such as 

retirement. This proposal reflects 

FHFA’s balancing of the administrative 

and compliance burdens of reviewing 

such payments, and its determination 

that reviewing such payments, even 

when made to an executive officer, 

exceeds FHFA’s level of supervisory 

concern where the payment is in an 

amount that does not suggest an evasion 

of the rule. For that reason, FHFA 

proposes to cap permissible gifts at $500 

or less. A gift exceeding $500 would be 

subject to review. 

To ensure that the small value gift 

provision remains at a relevant dollar 

amount FHFA is proposing an annual 

inflation adjustment in the same manner 

as proposed for de minimis payments. 

Thus, continuing the example 

previously set forth, if a troubled 

institution were applying the rule’s 

$500 small gift provision in June 2020, 

the $500 amount would be increased by 

2.1984355 percent for a result of 

$510.99 (which rounded to the nearest 

dollar would be $511) and the small gift 

cap for the entire calendar year of 2020 

would be $511. 

FHFA requests comments on all 

aspects of the proposed treatment of 

small value gifts, including whether the 

provision should expressly cover any 

types of gifts, and if so, what types. 

FHFA also requests comment on the 

proposed inflation adjustment formula. 

G. Procedure for Requesting Consent 

The rule currently sets forth 

instructions for filing requests for 

consent, including the contents of a 

filing and to whom requests should be 

sent. In general, FHFA proposes to 

retain without change filing 

requirements related to the reason the 

troubled institution seeks to enter into 


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57 12 U.S.C. 4518(e)(2). 

the agreement or payment; a 

requirement that the troubled institution 

provide a copy of any agreement 

regarding the subject matter of the 

request; the cost to the troubled 

institution of the proposed payment or 

payments and their impact on capital 

and earnings; and the reasons why 

FHFA should provide consent. FHFA is 

proposing a minor change to the content 

requirement related to the identity of 

the affiliated party to whom payment 

would be made, to clarify that a 

description of the class or group eligible 

for payment is required where the actual 

affiliated parties are not known or may 

change (as may be the case with a broadbased severance plan, for example). 

More substantive changes to the content 

of filing requirements, addressed below, 

generally align with other substantive 

proposed changes to the rule. 

For example, to align with proposed 

changes related to ‘‘nondiscriminatory 

benefit plans,’’ FHFA proposes to add a 

requirement related to any benefit plan 

that the regulated entity believes is 

‘‘nondiscriminatory’’ even though it is 

not listed among the IRS 

‘‘nondiscriminatory employee plans and 

programs’’ explicitly exempted from the 

‘‘golden parachute payment’’ definition. 

The regulated entity should support its 

assertion that the benefit plan is 

nondiscriminatory with a description of 

how it operates (or will operate) with 

regard to eligible participants at 

different levels of employment. If FHFA 

agrees that the plan is 

nondiscriminatory, then it will be 

exempt as a matter of law. 

It is possible that FHFA would 

disagree with the regulated entity’s 

suggested characterization of an 

agreement (i.e., that the agreement is a 

bona fide deferred compensation plan or 

arrangement, or is nondiscriminatory). 

In those instances, FHFA expects that it 

would then consider the request as if it 

had been submitted for FHFA’s general 

review and would notify the regulated 

entity both that FHFA disagreed with 

the proposed characterization and 

whether the proposed agreement was 

permitted, nonetheless. The regulated 

entity could then determine either to 

implement the plan as originally 

submitted to FHFA (subject to meeting 

other rule requirements related to 

payments) or to revise the plan to 

address issues with the regulated 

entity’s intended characterization (e.g., 

that the plan is ‘‘nondiscriminatory’’) 

and re-submit it to FHFA. 

FHFA is also proposing changes to a 

filing requirement related to a troubled 

institution’s certification and 

documentation of factors related to 

wrongdoing. Under the current rule, a 

troubled institution is required to 

‘‘demonstrate that it does not possess 

and it not aware of any information, 

evidence, documents or other materials 

that would indicate that there is a 

reasonable basis to believe’’ that the 

party to receive payment has engaged in 

four listed types of wrongdoing. 

Because the rule does not distinguish 

golden parachute payments from 

agreements, certification is required for 

any request to FHFA, including a 

request for FHFA review of a broadbased plan covering a large and fluid 

number of employees. FHFA believes 

that approach as applied to plans and 

agreements is unnecessarily 

burdensome (and may be infeasible) if it 

requires the troubled institution to make 

a certification with regard to a class of 

affiliated parties, particularly 

considering that a similar analysis and 

certification is required prior to actually 

providing the golden parachute 

payment. For that reason, FHFA is 

proposing to require troubled 

institutions to undertake the rule’s due 

diligence review only when entering 

into a golden parachute payment 

agreement with an individual affiliated 

party and when making any payment. In 

those cases, the affiliated party to whom 

payment would be made can be readily 

identified, making the review more 

meaningful and manageable. 

FHFA has previously addressed 

amendments to clarify the applicable 

standard and the expected level of due 

diligence review by a troubled 

institution. For purposes of making a 

request for FHFA consent to an 

individual agreement or any payment, 

however, a troubled institution would 

now be required to state either that it is 

reasonably assured that any affiliated 

party identified in the request has not 

engaged in the listed types of 

wrongdoing or, if it is not reasonably 

assured, the results of its due diligence 

and, in light of those results, why the 

troubled institution believes FHFA 

should nonetheless provide consent. 

These changes are intended to clarify 

that a troubled institution may request 

FHFA’s review and consent even if the 

‘‘reasonably assured’’ standard is not 

met. 

FHFA is also proposing minor 

changes to update the rule. For example, 

the rule currently refers to requests as 

‘‘letter applications.’’ FHFA now 

proposes to require simply that the 

request be in writing. FHFA also 

proposes to state expressly that it may 

waive or modify any form or content 

requirement. Thus, it could be 

appropriate for a troubled institution to 

make an oral request. Though the 

current rule does not prevent this, an 

express waiver provision would clarify 

that FHFA intends to be flexible where 

warranted by the circumstances of an 

agreement or payment. 

Finally, nothing prevents a troubled 

institution from providing any other 

information it believes is relevant to its 

request, including information relevant 

to factors for FHFA’s consideration that 

are set forth in the rule (and discussed 

further below). For example, a troubled 

institution may wish to note, and 

provide support for, its conclusion that 

a benefit plan is ‘‘usual and customary.’’ 

H. FHFA Review of Requests 

Review Factors. Section 4518(e) 

requires FHFA to set forth by regulation 

factors to be considered when acting to 

prohibit or limit a golden parachute 

payment or agreement, and suggests 

some factors that FHFA may consider.57

In that context, the rule’s prohibition of 

golden parachute payments is a 

procedural construct to ensure that 

agreements and payments that are not 

permitted by operation of the rule are 

subject to FHFA review and consent. In 

its review, FHFA applies the factors as 

appropriate to the facts and 

circumstances of a particular request, to 

determine whether an agreement or 

payment should be permitted or 

prohibited. 

Review factors suggested by statute 

include whether there is a reasonable 

basis to believe that the affiliated party 

(1) has committed any fraudulent act or 

omission, breach of trust or fiduciary 

duty, or insider abuse, or has violated 

any provision of federal or state law, 

that has had a material effect on the 

troubled institution’s financial 

condition, or (2) is substantially 

responsible for the troubled condition or 

insolvency of, or the appointment of a 

conservator or receiver for, the troubled 

institution. The current rule requires the 

regulated entities to consider these 

factors and an additional factor related 

to committing or conspiring to commit 

certain federal crimes, prior to 

submitting a request for consent. The 

rule also sets forth additional factors for 

the Director’s consideration when 

reviewing requests (including two 

factors suggested by Section 4518(e) that 

address the affiliated party’s position 

and length of affiliation with the 

regulated entity) and states that FHFA 

may consider any other factor that is 

relevant to the facts and circumstances, 

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 


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58The current rule’s process of review of 

agreements and subsequent payments has been 

Continued 

duty, and malfeasance by the affiliated 

party. 

FHFA is not proposing any changes to 

the rule factors that a troubled 

institution would be required to 

consider prior to submitting a request 

for FHFA’s consent. FHFA is proposing 

to add three new factors for the 

Director’s consideration, to reflect 

FHFA’s understanding of the purpose of 

Section 4518(e) and other proposed 

changes to the rule. 

As noted above, the legislative history 

and language of Section 4518(e) indicate 

it was intended to permit FHFA to 

prohibit or limit golden parachute 

payments that are excessive or abusive, 

or that would materially adversely affect 

the financial condition of the regulated 

entity. FHFA has always been guided by 

the purposes of Section 4518(e) in 

administering the rule, but proposes to 

add these factors now for transparency. 

FHFA is also proposing to add as a 

review factor whether an agreement 

(including a plan) is usual and 

customary. FHFA believes this can be 

an important factor given that the 

regulated entities hire employees with 

special expertise and must compete in 

the market for such talent. While the 

fact that the requesting regulated entity 

considers a benefit to be usual and 

customary would not, alone, determine 

permissibility, it is a factor that would 

inform FHFA’s review. 

Also for transparency, FHFA is 

proposing to add a review factor for any 

other information submitted by a 

regulated entity. This factor has been 

implicit in the current rule, as FHFA 

routinely considers all information 

submitted with a request for consent, 

but it would now be explicit. 

FHFA Review Process. Though FHFA 

is proposing relatively few changes to 

the rule’s review factors, other proposed 

rule changes will affect when and how 

review occurs. Specifically, if the rule is 

amended as proposed, it should result 

in a greater number of golden parachute 

payments being permitted by operation 

of the rule. As FHFA will not be 

reviewing these payments, it will not be 

applying the review factors to them. 

However, FHFA expects most payments 

that are permitted by operation of the 

rule to be those that are made in 

accordance with an agreement that is 

permitted, when the troubled institution 

is reasonably assured that the affiliated 

party to whom payment would be made 

has not engaged in the rule’s listed types 

of wrongdoing. Under the rule as 

amended, most agreements would 

require FHFA’s review to determine 

their permissibility (as they do now) 

and, when determining whether to 

permit the agreement, FHFA will 

consider the review factors as 

appropriate. 

If amended as proposed, the rule 

would permit a troubled institution to 

enter into two types of agreements to 

make golden parachute payments 

without FHFA review: Individually 

negotiated settlement agreements and 

agreements to make de minimis golden 

parachute payments, limited in each 

case to affiliated parties who are not 

executive officers. FHFA has considered 

whether application of the review 

factors would result in a determination 

that these agreements should be 

prohibited, and has determined it is 

unlikely. 

For individually negotiated settlement 

agreements, FHFA believes the risk that 

the rule as proposed to be amended 

would permit an agreement that would 

be prohibited if subject to FHFA review 

is small because of the type of 

agreement, and because, to be 

permitted, the agreement must be with 

an affiliated party who is not an 

executive officer, where the troubled 

institution is reasonably assured that the 

affiliated party has not engaged in listed 

types of wrongdoing. FHFA’s 

experience generally is that individually 

negotiated settlement agreements reflect 

the unique facts and circumstances that 

gave rise to the dispute, as considered 

and weighed by parties with opposing 

interests in achieving the agreed-upon 

settlement. This may include 

consideration of factors similar to those 

set forth in the rule (such as type of 

wrongdoing suspected and position, 

duties, or responsibilities of the 

affiliated party) in addition to factors 

that are not generally applicable, such 

as the anticipated cost of litigating a 

dispute and the potential benefit of 

avoiding future, similar, actions by 

other affiliated parties. Where the 

affiliated party is not in a position to 

influence an unduly favorable 

settlement offer—as an executive officer 

may be, based on prior relationships 

with higher ranking employees 

authorized to negotiate or approve 

settlement offers—the fact that the 

parties are opposed also supports the 

conclusion that the agreed-to settlement 

payment is not abusive or excessive. If, 

in addition, the troubled institution is 

reasonably assured that the affiliated 

party has not engaged in the listed types 

of wrongdoing, then there is relatively 

little risk that it is settling a claim as to 

which FHFA would have such a 

significant supervisory interest as to 

prohibit the agreement. 

For agreements to make de minimis 

golden parachute payments (and 

subsequent payments), the risk that the 

amended rule would permit an 

agreement that would be prohibited if 

subject to FHFA review is significantly 

minimized by limiting permissible 

agreements to affiliated parties who are 

not executive officers and capping the 

amount of the permissible payment. On 

past experience, FHFA has not had 

reason to prohibit such small payments 

on the basis that they were excessive or 

abusive, or that they would or could 

detrimentally impact the financial 

condition of the troubled institution. In 

contrast, FHFA has permitted small 

golden parachute payments to avoid 

imposing an excessive hardship on 

terminating employees, such as small 

payments to employees terminated 

involuntarily but not for cause whose 

performance was excellent but whose 

length of service did not qualify them 

for participation in a severance pay 

plan, or forgiveness of a small 

indebtedness to the troubled institution 

of an employee who terminated 

voluntarily to care for a family member 

with a disability. 

FHFA has also considered the 

likelihood that the rule as proposed to 

be amended would operate to permit 

payments that FHFA would prohibit, if 

subject to FHFA review. Where FHFA 

has determined to permit an agreement 

and the rule as amended would permit 

the troubled institution to make 

payments in accordance with that 

agreement only after it is reasonably 

assured that the affiliated party has not 

engaged in certain types of wrongdoing, 

then FHFA believes additional review at 

the time of payment is not warranted 

because, if review were required, FHFA 

would most likely allow the payment. 

Under the current rule, which does 

require review at the time of payment, 

FHFA has consistently permitted 

proposed payments to employees who 

are not executive officers, where the 

payment is in accordance with an 

agreement to which FHFA has 

consented and as to which the 

requesting regulated entity has 

submitted the rule’s required 

certification about employee 

wrongdoing. FHFA has done so based 

on, among other things, the possible 

negative consequences of prohibiting 

such payments on the condition of the 

requesting regulated entity—in 

particular, its ability to retain a stable 

workforce, replace employees based on 

more usual attrition rates, and recruit 

employees without paying a wage 

premium. FHFA’s experience is 

reflected in the rule amendments now 

proposed.58


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called a ‘‘double approval’’ process. When 

commenters previously objected to it, FHFA noted 

that it was appropriate because the condition of a 

regulated entity could change between the time an 

agreement was consented to and a payment is 

made. See, e.g., 79 FR 4394, 4396 (Jan. 28, 2014). 

This is still the case. However, FHFA’s experience 

administering the rule suggests that ‘‘double 

approval’’ should not be required as a matter of 

course for all payments because the burden 

imposed on the regulated entity and FHFA 

outweighs the supervisory benefit to FHFA of 

reviewing some types of payments or some 

payments in some circumstances. 

If amended as proposed, the rule 

would permit payments to be made 

without review of employee conduct 

related to the rule’s listed types of 

wrongdoing at the time of payment, by 

either FHFA or the regulated entity, in 

three instances: Settlement payments 

pursuant to permissible individually 

negotiated settlement agreements to any 

affiliated party, small value gifts to an 

executive officer, and de minimis 

payments to an affiliated party who is 

not an executive officer. For settlement 

payments, review of employee conduct 

would be required at the time the 

agreement is entered into and thus 

would occur in conjunction with 

FHFA’s determining whether to permit 

the agreement. For small value gifts and 

de minimis payments, FHFA has 

determined that review should not be 

required based on the small size of the 

gift for executive officers and, though 

larger, the size of the de minimis 

payment in combination with the 

limitation of this provision to nonexecutive-officer affiliated parties, and 

the facts that such payments are usually 

infrequent and made to avoid undue 

hardship. 

In sum, FHFA believes the rule as 

proposed to be amended appropriately 

identifies those golden parachute 

payments and agreements where FHFA 

review should occur, balancing FHFA’s 

supervisory concerns with the burdens 

of administration and compliance. 

FHFA also recognizes the possibility 

that, in some few cases, the amended 

rule could operate to permit an 

agreement or payment that FHFA may 

have prohibited if it had been reviewed, 

however. Apart from prohibiting golden 

parachute payments and agreements 

through the rule, FHFA has other 

supervisory, remedial and enforcement 

authority that it may use to address 

improper payments or agreements and 

prevent them in the future. For example, 

if FHFA determined that a regulated 

entity did not have an appropriate 

process for entering into and 

administering agreements to make 

golden parachute payments to affiliated 

parties, FHFA could require the 

regulated entity to take corrective 

action, or FHFA could initiate an 

enforcement action. If an affiliated party 

obtained a golden parachute payment 

on the basis of a false representation 

about their actions while affiliated with 

the regulated entity, the regulated entity 

or FHFA could bring an action seeking 

restitution or reimbursement, or another 

legal remedy. 

IV. Section-by-Section Analysis 

A. § 1231.1—Purpose 

FHFA is proposing conforming 

changes to this section. 

B. § 1231.2—Definitions 

Affiliated party. FHFA is proposing to 

change the defined term ‘‘entityaffiliated party’’ to ‘‘affiliated party’’ 

throughout the rule, to avoid confusion 

with other, different, statutory and 

regulatory uses of the term ‘‘entityaffiliated party.’’ FHFA is also 

proposing to amend the definition for 

purposes of golden parachute payments 

and agreements. For all regulated 

entities and OF, ‘‘affiliated party’’ 

would include all officers, directors, 

and employees, and any other person 

who the Director determined, by 

regulation or order, was participating in 

the conduct of the affairs of the 

regulated entity or OF. 

For the Enterprises and the Banks, 

fewer parties would be covered by type 

of affiliation (e.g., shareholders). FHFA 

believes it is unlikely that some of the 

named ‘‘affiliated parties’’ would 

receive payments contingent on 

termination, and the ‘‘catch-all’’ for any 

person determined to be participating in 

the conduct of the affairs of the 

regulated entity makes including parties 

by type unnecessary. 

For OF, the scope of the amended 

‘‘affiliated party’’ definition would be 

broader than the current definition, 

which covers OF managers and officers 

but does not cover other OF employees, 

and which does not have a ‘‘catch-all’’ 

for OF. FHFA has determined that, with 

regard to OF, the ‘‘affiliated party’’ 

definition is unnecessarily narrow and 

should be aligned with the definition 

applied to the Enterprises and the 

Banks. 

FHFA is not amending the substance 

of the existing ‘‘entity-affiliated party’’ 

definition for purposes of provisions of 

part 1231 that address indemnification 

payments. For that reason, FHFA is 

adding language to distinguish which 

portion of the ‘‘affiliated party’’ 

definition applies to which type of 

payment (golden parachute payments 

and indemnification payments). 

Agreement. FHFA is proposing to add 

a new definition of the term 

‘‘agreement,’’ to implement its intention 

to distinguish the rule as applied to 

agreements to make golden parachute 

payments from its application to golden 

parachute payments. The statutory 

‘‘golden parachute payment’’ definition 

covers both agreements and payments, 

and FHFA’s rule covered, and will 

continue to cover, both agreements and 

payments. 

Benefit plan. FHFA is proposing to 

remove the definition of ‘‘benefit plan.’’ 

The purpose of this definition was to 

list two types of plans that were exempt 

from the definition of ‘‘golden parachute 

payment:’’ ‘‘employee welfare benefit 

plans’’ as defined in section 3(1) of 

ERISA, and other ‘‘usual and customary 

plans.’’ The exemption for ERISA 

‘‘employee welfare benefit plans’’ is 

being retained and relocated. FHFA 

proposes to remove the exemption for 

‘‘usual and customary plans’’ because 

the exemption was not self-executing in 

practice (i.e., regulated entities 

submitted plans that they thought were 

‘‘usual and customary’’ and thus exempt 

to FHFA for review and concurrence) 

and FHFA believes most ‘‘usual and 

customary plans’’ will now be covered 

by other proposed exemptions. If a plan 

that a regulated entity considers to be 

‘‘usual and customary’’ is not covered 

by another exemption, the regulated 

entity could request FHFA’s consent to 

the plan in accordance with the rule. 

Bona fide deferred compensation plan 

or arrangement. FHFA is proposing to 

amend the definition of ‘‘bona fide 

deferred compensation plan or 

arrangement’’ to remove duplicative 

material and relocate a timing 

requirement that, if met, makes the plan 

or arrangement exempt from the 

‘‘golden parachute payment’’ definition. 

The timing requirement would now 

appear with rule provisions related to 

exemptions. 

Entity-affiliated party. As addressed 

above, FHFA is proposing to replace the 

term ‘‘entity-affiliated party’’ with 

‘‘affiliated party’’ throughout the rule, to 

avoid confusion with other, different, 

statutory and regulatory uses of the term 

‘‘entity-affiliated party’’. 

Executive officer. FHFA is proposing 

to add a definition of ‘‘executive 

officer,’’ to implement an approach to 

golden parachute payments and 

agreements that, in some cases, 

distinguishes the treatment of an 

agreement with or payment to an 

executive officer from those to another 

affiliated party, particularly lowerranking employees. For purposes of the 

rule, ‘‘executive officer’’ would be 

defined as it is in FHFA’s separate rule 

on executive compensation, at 12 CFR 

part 1230. Any person who is an 


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‘‘executive officer’’ for purposes of that 

rule, including any person deemed to be 

an ‘‘executive officer’’ by the Director, 

would be treated as an ‘‘executive 

officer’’ for the Golden Parachute 

Payments rule. In addition, when 

applying the ‘‘catch-all’’ in the 

‘‘affiliated party’’ definition, the 

Director could determine that a person 

participates to such a degree in the 

conduct of the affairs of the regulated 

entity as to warrant treating the person 

as an ‘‘executive officer’’ for purposes of 

the Golden Parachute Payments rule. 

Golden parachute payment. FHFA is 

proposing to remove reference to an 

‘‘agreement’’ from the rule’s definition 

of ‘‘golden parachute payment,’’ to 

implement FHFA’s intention to 

distinguish, in some cases, the treatment 

of an agreement to make a golden 

parachute payment from the treatment 

of the payment. FHFA is also proposing 

to remove the phrase ‘‘pursuant to an 

obligation of such regulated entity or the 

Office of Finance,’’ to clarify FHFA’s 

authority to prohibit (or limit) gifts or 

contributions that a regulated entity or 

OF is not obligated to make, but are 

nonetheless ‘‘in the nature of 

compensation.’’ Further, FHFA 

proposes to remove a list of triggering 

events, the occurrence of which would 

cause payments by a regulated entity to 

a terminating affiliated party to be 

‘‘golden parachute payments,’’ from the 

‘‘golden parachute payment’’ definition. 

The listed events would be replaced 

with the reference term ‘‘troubled 

institution’’ (which would be defined in 

the rule). This change is intended to 

improve the readability of the rule and 

is not substantive. 

Finally, FHFA is proposing to change 

the placement, within the rule, of 

exemptions from the ‘‘golden parachute 

payment’’ definition. Following the 

structure of Section 4518(e), exemptions 

have been listed in the definitional 

section. As a legal matter, the effect of 

an exemption is that an agreement or 

payment that could otherwise be 

construed as a ‘‘golden parachute 

payment’’ is permitted without FHFA 

review and consent and cannot be 

prohibited using authority conferred by 

Section 4518(e). Since the practical 

effect of an exemption is the same as if 

the agreement or payment were 

permitted by the rule, FHFA believes 

the rule will be easier to understand and 

apply if all permissible agreements and 

payments—whether they are permitted 

to implement a statutory exemption 

from the ‘‘golden parachute payment’’ 

definition or by operation of the rule— 

are located together. To accomplish this, 

FHFA is proposing to relocate 

exemptions to the rule’s substantive 

section. 

Individually negotiated settlement 

agreement. FHFA is proposing to add a 

definition of an ‘‘individually 

negotiated settlement agreement’’ for 

agreements entered into to settle a 

claim, or avoid a claim reasonably 

anticipated, against a regulated entity by 

an affiliated party, which involve a 

payment and a release of claims. This 

definition is used in provisions of the 

rule permitting such agreements, and 

payments pursuant to them, provided 

certain conditions are met. 

Nondiscriminatory. FHFA is 

proposing to remove the definition of 

‘‘nondiscriminatory’’ from the rule. In 

the current rule, this definition applies 

only in the context of an exemption 

from the ‘‘golden parachute payment’’ 

definition for certain severance pay 

plans. Severance pay plans that did not 

meet that condition were subject to 

FHFA’s review, and, based on its 

experience conducting such reviews, 

FHFA has determined that severance 

pay plans should be subject to review. 

FHFA has also determined that the 

current definition of 

‘‘nondiscriminatory’’ may not be 

appropriate if applied to other types of 

benefit plans, and thus that the 

definition should be removed. 

Payment. FHFA is not proposing any 

changes to the rule’s definition of 

‘‘payment.’’ 

Permitted. FHFA is proposing to add 

a definition of ‘‘permitted’’ when used 

in the context of a golden parachute 

payment agreement, to describe those 

agreements that may be the basis for a 

payment that does not require FHFA 

review and consent. A ‘‘permitted’’ 

agreement is an agreement that is 

permitted by operation of the rule or to 

which the Director has consented after 

review. 

Troubled condition. FHFA is 

proposing to remove the definition of 

‘‘troubled condition’’ but would include 

that triggering event, and the factors that 

would cause a regulated entity to be in 

‘‘troubled condition,’’ within a new 

definition of ‘‘troubled institution.’’ 

Troubled institution. FHFA proposes 

to add a new defined term, ‘‘troubled 

institution,’’ to improve the readability 

of the ‘‘golden parachute payment’’ 

definition. The definition of ‘‘troubled 

institution’’ will include all of the 

events the occurrence of which at a 

regulated entity would cause 

agreements with or payments to 

terminating affiliated parties to be 

‘‘golden parachute payments,’’ and will 

include all events that the current rule 

lists as defining ‘‘troubled condition.’’ 

FHFA also proposes to add an 

interpretation of the phrase ‘‘or is made 

in contemplation of’’ to the ‘‘troubled 

institution’’ definition. That phrase is 

used in Section 4518(e) to refer to 

agreements or payments that are made 

before a regulated entity becomes a 

‘‘troubled institution’’ but which would 

be ‘‘golden parachute payments’’ if they 

had occurred after the triggering event. 

This interpretation would establish a 

rebuttable presumption that an 

agreement or payment made in the 90 

days prior to the regulated entity’s 

becoming a troubled institution is 

‘‘made in contemplation of’’ becoming a 

‘‘troubled institution’’ and thus is a 

golden parachute payment or 

agreement. 

C. § 1231.3—Golden Parachute 

Payments 

FHFA is proposing several changes to 

§ 1231.3, which currently prohibits 

golden parachute payments unless they 

are permissible by operation of the rule 

or are consented to by the Director of 

FHFA. To reflect the proposed rule’s 

distinctions between agreements and 

payments, the phrase ‘‘and agreements’’ 

would be added to titles, as appropriate. 

Prohibited golden parachute 

payments. FHFA does not propose any 

changes to § 1231.3(a) other than to its 

title, which will now state ‘‘In general, 

FHFA consent required.’’ This 

subsection establishes the rule’s overall 

approach of prohibiting any golden 

parachute payment or agreement unless 

it is exempt from the rule, permitted by 

operation of the rule, or permitted by 

FHFA after review. FHFA believes the 

title as proposed to be amended is a 

more appropriate reflection of FHFA’s 

process. 

Permissible golden parachute 

payments. FHFA proposes extensive 

revisions to § 1231.3(b), effectively 

replacing it. Section 1231.3(b) currently 

addresses permissible golden parachute 

payments and agreements. As amended, 

§ 1231.3(b) would set forth those 

agreements and payments that do not 

require FHFA consent because they are 

statutorily exempted from the ‘‘golden 

parachute payment’’ definition. To 

reflect that substantive change, 

§ 1231.3(b) would be renamed ‘‘Exempt 

agreements and payments.’’ 

Exempt agreements and payments. 

Exemptions to be set forth in § 1231.3(b) 

are being relocated from § 1231.2, which 

now presents them in conjunction with 

the ‘‘golden parachute payment’’ 

definition. FHFA is also proposing to 

amend some exemptions, however. 

First, FHFA is removing references to 

foreign law, which FHFA does not 

believe would be applicable to its 


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regulated entities, from exemptions 

related to qualified pensions or 

retirement plans and for certain 

severance or similar payments. FHFA is 

also removing an exemption for any 

‘‘benefit plan,’’ consistent with its 

proposal to remove ‘‘benefit plan’’ as a 

defined term. ERISA ‘‘employee welfare 

benefit plans’’ currently within the 

‘‘benefit plan’’ definition, and thus 

exempt, would now be included as a 

stand-alone exemption from the ‘‘golden 

parachute payment’’ definition. An 

exemption for ‘‘bona fide deferred 

compensation plans or arrangements’’ 

would be expanded, to include plans or 

arrangements that meet all definitional 

requirements other than one related to 

the timing of the plan’s establishment or 

material amendment, but to which 

FHFA consents after review. An 

exemption for severance pay plans that 

are ‘‘nondiscriminatory’’ and meet other 

conditions would be removed, as FHFA 

has found that the exemption is not 

realistically available for the marketbased severance pay plans of its 

troubled institutions and, based on 

experience gained from reviewing such 

plans, FHFA believes most severance 

pay plans should be reviewed as a 

matter of supervisory policy. 

FHFA is also proposing to add new 

exemptions for any ‘‘nondiscriminatory 

employee plan or program’’ as defined 

for purposes of an IRC provision on 

parachute payments, at 26 U.S.C. 280G, 

and for any other benefit plan that the 

Director determines to be 

nondiscriminatory. The statutory golden 

parachute payment definition includes 

an exemption for ‘‘nondiscriminatory 

benefit plans,’’ but that term is not 

defined. Incorporation of the IRC 

‘‘nondiscriminatory employee plans and 

programs’’ provides FHFA and its 

regulated entities a common reference 

and aligns FHFA and IRC treatment for 

purposes of parachute payments. 

Because there could be other benefit 

plans that are ‘‘nondiscriminatory’’ but 

that are not included among the IRC 

‘‘nondiscriminatory employee plans and 

programs,’’ however, the rule would 

also exempt those benefit plans that the 

Director determines are 

nondiscriminatory, on request for 

review by a regulated entity. 

Golden parachute payment 

agreements for which FHFA consent is 

not required. To distinguish between 

agreements and payments, FHFA 

proposes to add subsections that 

separately address permitted agreements 

and permitted payments. Within the 

construct of the rule, an agreement or 

payment that is not exempt from the 

definition of ‘‘golden parachute 

payment’’ or permitted by operation of 

the rule must be submitted to FHFA for 

review and is prohibited without 

consent. 

New § 1231.3(c) would address only 

agreements, and would establish three 

types of agreements that are permitted 

by operation of the rule. Proposed new 

§ 1231.3(c)(1) would permit agreements 

with or plans covering any affiliated 

party, where the plan or agreement is 

directed or established by the Director 

exercising authority conferred by 12 

U.S.C. 4617. Proposed new 

§ 1231.3(c)(2)(i) and (ii) would address 

agreements that are permitted provided 

they are with an affiliated party other 

than an executive officer—individually 

negotiated settlement agreements that 

meet certain conditions, and agreements 

to make de minimis payments. 

Provisions of the current rule at 

§ 1231.3(b)(1)(ii) and (iii), on permitted 

agreements made to hire a person when 

the regulated entity is, or to prevent it 

from imminently becoming, a troubled 

institution, and permitted changed in 

control agreements, would be removed. 

These provisions are subsumed in the 

other proposed amendments. 

Golden parachute payments for which 

FHFA consent is not required. Proposed 

new § 1231.3(d) would set forth the 

types of payments that are permitted by 

the rule. Proposed new § 1231.3(d)(1)(i) 

and (ii) would address two types of 

permitted payments to any affiliated 

party, including an executive officer: 

Payments pursuant to an individually 

negotiated settlement agreement, and 

payments pursuant to a permitted 

agreement, where the Director provided 

consent to the payment in conjunction 

with reviewing the agreement and any 

conditions established by the Director 

when consenting to the payment have 

been met. Proposed new § 1231.3(d)(2) 

addresses one other permissible 

payment to any executive officer, a gift 

valued at $500 or less that recognizes a 

significant life event such as retirement. 

Proposed new § 1231.3(d)(3) would 

address two other types of payments 

that could be made to affiliated parties 

other than executive officers without 

FHFA review. Section 1231.3(d)(3)(i) 

would permit payments above a de 

minimis amount to be made to any 

affiliated party other than an executive 

officer, where the payment is in 

accordance with a permitted agreement 

and the troubled institution is 

reasonably assured, after conducting 

appropriate due diligence, that the 

affiliated party has not engaged in 

certain types of wrongdoing listed in the 

rule. Section 1231.3(d)(3)(ii) would 

permit payments at or below the de 

minimis amount to be made to an 

affiliated party other than an executive 

officer without FHFA review. 

FHFA is also proposing to clarify the 

standard that a regulated entity must 

meet when, in conjunction with a 

request for FHFA’s consent to an 

agreement or a payment, it considers the 

behavior of the affiliated party to whom 

payment would be made. The rule’s 

current standard could imply that a 

regulated entity may not request FHFA 

consent if it is not able to certify, with 

a high degree of certainty, that the 

affiliated party has not engaged in 

certain types of wrongdoing listed in the 

rule. FHFA is not proposing any change 

to the types of wrongdoing listed, which 

are currently set forth at 

§ 1231.3(b)(1)(iv)(A) through (D) and 

would appear in the rule if amended as 

proposed at § 1231.3(e)(1)(i) through 

(iv). However, FHFA is proposing new 

§ 1231.3(e)(1) to clarify that the due 

diligence required of a troubled 

institution, when assessing whether the 

affiliated party engaged in the listed 

types of wrongdoing, should be 

appropriate to the level and 

responsibilities of the affiliated party. 

Proposed new § 1231.3(e)(2) would 

set forth the standard that a troubled 

institution must meet with regard to its 

assessment and understanding of the 

affiliated party’s behavior, and would 

operate in conjunction with other 

proposed provisions that would permit 

a troubled institution to enter into an 

agreement to make a golden parachute 

payment, or to make such a payment 

without requesting FHFA review. 

Specifically, § 1231.3(e)(2) would 

provide that a troubled institution must 

be ‘‘reasonably assured’’ that the 

affiliated party has not engaged in the 

listed types of wrongdoing. 

Proposed new § 1231.3(e)(3) would 

require notice to FHFA if a troubled 

institution intended to enter into a 

golden parachute payment agreement or 

make a payment that would be 

permitted by the rule without FHFA 

review but was not able to do so because 

it cannot meet the ‘‘reasonably assured’’ 

standard, and thereafter determines not 

to submit a request for review. Such 

notice is intended to ensure that FHFA 

is informed of concerns about 

wrongdoing that rise to a level where 

the troubled institution is not 

‘‘reasonably assured’’ so that FHFA may 

follow up with appropriate supervisory 

action, and would be required to be 

provided to FHFA within 15 business 

days after the troubled institution 

determined that it could not meet the 

required standard. 

Proposed new § 1231.3(f) would set 

forth factors the Director would 

consider when reviewing requests for 


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consent to make a golden parachute 

payment, or enter into an agreement. All 

of the factors in the current rule, at 

§ 1231.3(b)(2)(i) through (iii), would be 

retained but would be re-numbered. In 

addition, two new factors would be 

added, to consider whether the golden 

parachute payment would be made in 

accordance with an employee benefit 

plan that is usual and customary and 

whether the golden parachute payment 

or agreement is excessive or abusive, or 

would threaten the financial condition 

of the regulated entity. 

Proposed new § 1231.3(g) would 

permit, but not require, the regulated 

entities to increase the regulatory caps 

for permitted small value gifts and 

agreements and payments that do not 

exceed a de minimis amount. It would 

also set forth the formula that must be 

used, if a regulated entity elects to apply 

the inflation adjustment to increase the 

cap. 

D. § 1231.4—Indemnification Payments 

Section 1231.4 of the current rule is 

reserved. 

E. § 1231.5—Applicability in the Event 

of Receivership 

FHFA is proposing conforming 

changes to § 1231.5 of the current rule, 

which addresses the effect of the 

appointment of a receiver for a regulated 

entity on any consent or approval 

provided pursuant to the rule. 

F. § 1231.6—Filing Instructions 

Section 1231.6 of the current rule sets 

forth instructions for filing requests for 

consent, including where such requests 

must be filed and their content. Minor 

amendments to § 1231.6(a), on the scope 

of the filing instructions, would 

conform to substantive changes 

proposed to the rule. Likewise, 

§ 1231.6(b), which addresses where to 

file a request, would be updated and 

amended to cover any required notice to 

FHFA. 

Content requirements currently set 

forth in the rule at § 1231.6(c)(1) 

through (5) would be retained, but 

would be re-numbered (c)(2) through (6) 

because of the addition of a requirement 

that the request be in writing (this was 

previously implied by reference to a 

‘‘letter request’’; FHFA wishes to clarify 

that other forms of writing, such as 

email, would meet the requirement). 

Two new requirements would also be 

added to proposed § 1231.6(c)(7) and 

(8), to address specific types of 

agreements or payments (i.e., an 

agreement that the troubled institution 

believes is a ‘‘nondiscriminatory benefit 

plan’’ exempt as a matter of law; and a 

‘‘bona fide deferred compensation plan 

or arrangement’’ for which the troubled 

institution seeks re-application of the 

exemption). Whether a request should 

include information responsive to 

content requirements at § 1231.6(c)(7) 

and (8) will depend on the type of 

agreement that is being submitted for 

review. 

A content-of-request requirement 

currently set forth at § 1231.6(c)(6), 

which addresses certification that a 

regulated entity must make when 

submitting a request, would be 

removed. A new requirement would be 

added at § 1231.6(c)(9), that the troubled 

institution requesting review of an 

agreement with an individual affiliated 

party or any payment state in the 

request either that the troubled 

institution meets the ‘‘reasonably 

assured’’ standard or, if it does not, the 

reasons why it does not and the further 

reasons why the troubled institution 

believes FHFA should nonetheless 

consent to the golden parachute 

payment or agreement. 

Section 1231.6(e), which addresses 

FHFA’s response to a request, will be 

relocated to § 1231.6(d), to follow the 

content-of-request requirements. New 

subsection (e) will address the content 

of the notice that must be provided to 

FHFA when a troubled institution is not 

‘‘reasonably assured’’ that an affiliated 

party has not engaged in the rule’s listed 

types of wrongdoing but elects not to 

submit a request for consent to a golden 

parachute payment or agreement to 

FHFA for review. These requirements 

are intended to ensure that the notice 

informs FHFA of the results of the 

troubled institution’s due diligence and 

the basis for its concern that the 

affiliated party may have engaged in 

wrongdoing of a type listed in the rule 

in detail sufficient for an appropriate 

supervisory response, while not being 

overly burdensome on the troubled 

institution. 

Section 1231.6 would also be 

amended to include a new subsection 

(f), to clarify that FHFA may waive any 

filing requirement set forth in the rule. 

FHFA recognizes that in some cases, for 

example, an oral request may be 

appropriate. 

Finally, notice that FHFA may request 

additional information during the 

processing of a request would be relocated to new § 1231.3(g) and 

expanded to cover notices to FHFA, in 

addition to requests. 

V. Differences Between Banks and 

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 proposed rule, the 

Director considered the differences 

between the Banks and the Enterprises 

as they relate to the above factors. The 

Director requests comments from the 

public about whether differences related 

to these factors should result in a 

revision of the proposed rule as it 

relates to the Banks. 

VI. Paperwork Reduction Act 

The proposed rule would not contain 

any information collection requirement 

that would require 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. 

VII. 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 proposed 

rule under the Regulatory Flexibility 

Act. The General Counsel of FHFA 

certifies that this proposed rule, if 

adopted as a final rule, is not likely to 

have a significant economic impact on 

a substantial number of small entities 

because the regulation applies only to 

the regulated entities, which are not 

small entities for purposes of the 

Regulatory Flexibility Act. 

List of Subjects in 12 CFR Part 1231 

Golden parachutes, Government 

sponsored enterprises, Indemnification. 

Authority and Issuance 

For the reasons stated in the 

Supplementary Information, under the 

authority of 12 U.S.C. 4511, 4513, 4518, 

4518a, and 4526, FHFA proposes to 

amend part 1231 of Title 12 of the Code 

of Federal Regulations as follows: 


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CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

SUBCHAPTER B—ENTITY REGULATIONS 

PART 1231—GOLDEN PARACHUTE 

AND INDEMNIFICATION PAYMENTS 

■ 1. The authority citation for part 1231 

is revised to read as follows: 

Authority: 12 U.S.C. 12 U.S.C. 4511, 4513, 

4518, 4518a, 4526, and 4617. 

■ 2. Revise § 1231.1 to read as follows: 

§ 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 

prohibited and permissible 

indemnification payments that 

regulated entities and the Office of 

Finance may make to affiliated parties. 

■ 3. Revise § 1231.2 to read as follows: 

§ 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 Office of 

Finance; 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 Office of 

Finance, 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 Office of Finance, any 

director, officer, or manager of the 

Office of Finance; 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 Office of 

Finance 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 Office of Finance 

becoming a troubled institution; 

(iv) The regulated entity or Office of 

Finance 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 

Office of Finance 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. 

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. 

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 


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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 Office of Finance 

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 Office of Finance 

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. 

■ 4. Revise § 1231.3 to read as follows: 

§ 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 within 

a reasonable period of time 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 

Office of Finance 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 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 $2500 

(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 

(subject to any adjustment for inflation 

pursuant to paragraph (g) of this 

section). 

(3) Other payments to an affiliated 

party who is not an executive officer. A 

troubled institution may make a golden 

parachute payment to an affiliated party 

who is not an executive officer without 

the Director’s consent in accordance 

with this part, 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 

$2500 (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: 


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(i) Has committed any fraudulent act 

or omission, breach of trust or fiduciary 

duty, or insider abuse with regard to the 

regulated entity or Office of Finance that 

is likely to have a material adverse effect 

on the regulated entity or the Office of 

Finance; 

(ii) Is substantially responsible for the 

regulated entity or the Office of Finance 

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 Office of Finance; 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 

paragraph (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 Office of Finance, 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 

[month prior to the month of 

publication in the Federal Register] 

2018, with the resulting sum rounded 

up to the nearest whole dollar. 

■ 5. Revise § 1231.5 to read as follows: 

§ 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. 

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)). 

■ 6. Revise § 1231.6 to read as follows: 

§ 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 

§ 1231.3. 

(b) Where to file. A troubled 

institution must submit any request for 

consent or notice required by § 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 § 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 § 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 Office of 

Finance becoming a troubled 

institution; 

(9) For any agreement with an 

individual affiliated party, or for any 

payment, either: 

(i) State that the troubled institution 

is reasonably assured that the affiliated 

party has not engaged in any of the 

actions listed in § 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 § 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 § 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 


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Federal Register / Vol. 83, No. 167 / Tuesday, August 28, 2018 / Proposed Rules 43825 

(4) State each reason why the troubled 

institution cannot meet the standard set 

forth in § 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: August 20, 2018. 

Melvin L. Watt, 

Director, Federal Housing Finance Agency. 

[FR Doc. 2018–18511 Filed 8–27–18; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF LABOR 

Wage and Hour Division 

29 CFR Part 541 

White Collar Exemption Regulations; 

Public Listening Sessions 

AGENCY: Wage and Hour Division, 

Department of Labor. 

ACTION: Notification of public listening 

sessions. 

SUMMARY: The Department of Labor will 

conduct public listening sessions to 

gather views on white collar exemption 

regulations. The Fair Labor Standards 

Act (FLSA) generally requires covered 

employers to pay their employees at 

least the federal minimum wage 

(currently $7.25 an hour) for all hours 

worked, and overtime premium pay of 

not less than one and one-half times the 

employee’s regular rate of pay for any 

hours worked over 40 in a workweek. 

The FLSA exempts from both minimum 

wage and overtime protection ‘‘any 

employee employed in a bona fide 

executive, administrative, or 

professional capacity’’ and delegates to 

the Secretary of Labor the power to 

define and delimit these terms through 

regulation. 

DATES: The dates, locations, and times 

for the public listening sessions are 

listed below: 

September 7, 2018, Atlanta, Georgia, 10 

a.m.–12 p.m. 

September 11, 2018, Seattle, 

Washington, 10 a.m.–12 p.m. 

September 13, 2018, Kansas City, 

Missouri, 10 a.m.–12 p.m. 

September 14, 2018, Denver, Colorado, 

10 a.m.–12 p.m. 

September 24, 2018, Providence, Rhode 

Island, 10 a.m.–12 p.m. 

Members of the public may attend 

these listening sessions in person up to 

the seating capacity of the room. The 

Department will not attempt to achieve 

a consensus view in these listening 

sessions, but rather is interested in 

hearing the views and ideas of 

participants. 

ADDRESSES: To obtain specific location 

details and register to attend, please 

visit this link: https://

www.eventbrite.com/e/overtime-ruleoutreach-sessions-tickets-49216139799. 

FOR FURTHER INFORMATION CONTACT: 

Stephen Davis, Listening Session 

Coordinator, Division of Regulations, 

Legislation, and Interpretation, Wage 

and Hour Division, U.S. Department of 

Labor, Room S–3502, 200 Constitution 

Avenue NW, Washington, DC 20210; 

telephone: (202) 693–0406 (this is not a 

toll-free number). Copies of this notice 

may be obtained in alternative formats 

(Large Print, Braille, Audio Tape, or 

Disc), upon request, by calling (202) 

693–0023 (not a toll-free number). TTY/ 

TTD callers may dial toll-free (877) 889– 

5627 to obtain information or request 

materials in alternative formats. 

SUPPLEMENTARY INFORMATION: On July 

26, 2017, the Department of Labor 

published a Request for Information 

(RFI), Defining and Delimiting the 

Exemptions for Executive, 

Administrative, Professional, Outside 

Sales and Computer Employees. See 82 

FR 34616. The RFI was one opportunity 

for the public to provide information to 

aid the Department in formulating a 

proposal to revise the white collar 

exemption regulations. Public listening 

sessions will provide further 

opportunity for the public to provide 

input on issues related to the salary 

level test, such as: 

1. What is the appropriate salary level 

(or range of salary levels) above which 

the overtime exemptions for bona fide 

executive, administrative, or 

professional employees may apply? 

Why? 

2. What benefits and costs to 

employees and employers might 

accompany an increased salary level? 

How would an increased salary level 

affect real wages (e.g., increasing 

overtime pay for employees whose 

current salaries are below a new level 

but above the current threshold)? Could 

an increased salary level reduce 

litigation costs by reducing the number 

of employees whose exemption status is 

unclear? Could this additional certainty 

produce other benefits for employees 

and employers? 

3. What is the best methodology to 

determine an updated salary level? 

Should the update derive from wage 

growth, cost-of-living increases, actual 

wages paid to employees, or some other 

measure? 

4. Should the Department more 

regularly update the standard salary 

level and the total-annual-compensation 

level for highly compensated 

employees? If so, how should these 

updates be made? How frequently 

should updates occur? What benefits, if 

any, could result from more frequent 

updates? 

Dated: August 23, 2018. 

Melissa Smith, 

Director, Division of Regulations, Legislation 

and Interpretation. 

[FR Doc. 2018–18649 Filed 8–27–18; 8:45 am] 

BILLING CODE 4510–27–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R05–OAR–2017–0147; FRL–9982– 

90—Region 5] 

Air Plan Approval; Indiana; 

Reasonable Further Progress Plan and 

Other Plan Elements for the Chicago 

Nonattainment Area for the 2008 

Ozone Standard 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to approve a 

revision to the Indiana State 

Implementation Plan (SIP) to meet the 

base year emissions inventory, 

reasonable further progress (RFP), RFP 

contingency measure, nonattainment 

new source review (nonattainment 

NSR), volatile organic compound (VOC) 

reasonably available control technology 

(RACT), and motor vehicle inspection 

and maintenance (I/M) requirements of 

the Clean Air Act (CAA) for the Indiana 

portion of the Chicago-Naperville, 

Illinois-Indiana-Wisconsin area 

(Chicago area) for the 2008 ozone 

national ambient air quality standard 

(NAAQS or standard). EPA is also 

proposing to approve the 2017 

transportation conformity motor vehicle 

emissions budgets (MVEBs) for the 

Indiana portion of the Chicago area for 

the 2008 ozone NAAQS. EPA is 

proposing to approve the state’s 

submission as a SIP revision pursuant to 

section 110 and part D of the CAA and 

EPA’s regulations because it satisfies the 

emission inventory, RFP, RFP 

contingency measure, nonattainment 

NSR, VOC RACT, I/M, and 

transportation conformity requirements 

for areas classified as moderate 


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