[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Rules and Regulations]
[Pages 10325-10326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-04023]


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FARM CREDIT ADMINISTRATION

12 CFR Part 620

RIN 3052-AD02


Disclosure to Shareholders; Pension Benefit Disclosures

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we or our) amends our 
regulations related to Farm Credit System (System) bank and association 
disclosures to shareholders and investors of senior officer 
compensation in the Summary Compensation Table (Table). Under the final 
rule, System banks and associations are not required to report in the 
Table the compensation of employees who are not senior officers and who 
would not otherwise be considered ``highly compensated employees'' but 
for the payments related to, or change(s) in value of, the employees' 
qualified pension plans, provided that the plans were available to all 
employees on the same basis at the time the employees joined the plans.

DATES: Effective Date: The regulation will be effective 30 days after 
publication in the Federal Register during which time either one or 
both Houses of Congress are in session. We will publish a notice of the 
effective date in the Federal Register.
    Compliance Date: System banks and associations must comply with the 
final rule for compensation reported in the Table for the fiscal year 
ending 2015, and may implement the final rule retroactively for the 
fiscal years ended 2014, 2013, and 2012. However, retroactive 
application is not required, and we would expect footnote disclosure of 
the change in calculation for the fiscal years to which the final rule 
was applied.

FOR FURTHER INFORMATION CONTACT: Michael T. Wilson, Policy Analyst, 
Office of Regulatory Policy, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4124, TTY (703) 883-4056, Or
    Jeff Pienta, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 
883-4056.

SUPPLEMENTARY INFORMATION:

I. Objective

    The objective of this rule is to improve the quality of disclosure 
information shareholders receive on senior officer and highly 
compensated employee compensation.

II. Background

    Congress explained in section 514 of the Farm Credit Banks and 
Associations Safety and Soundness Act of 1992 (1992 Act) \1\ that 
disclosures of financial information and compensation paid to senior 
officers, among other disclosures, provide System shareholders with 
information necessary to better manage their institution and make 
informed decisions regarding the operation of their institution. In 
addition, the FCA Board declared its commitment to support the 
cooperative business model and structure by encouraging member-
borrowers to participate in the management, control, and ownership of 
their institutions.\2\ Providing member-borrowers with transparent and 
complete disclosures regarding the compensation of senior officers and 
certain other highly compensated employees is essential to fostering an 
environment wherein member-borrowers can do so effectively.
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    \1\ Public Law 102-552, 106 Stat. 4131 (1992).
    \2\ See FCA Policy Statement ``Cooperative Operating 
Philosophy--Serving the Members of Farm Credit System Institutions'' 
(FCA-PS-80), dated October 14, 2010.
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    With this as one of our objectives, we issued a final rule on 
October 3, 2012, that enhanced disclosure of senior officer 
compensation and other related topics. Section 620.6(c)(2)(i) requires 
System Banks and associations to disclose senior officer compensation 
for the last 3 fiscal years. For purposes of this reporting requirement 
only, Sec.  620.6(c)(2)(i) extends the regulatory definition of 
``senior officers'' to include any employee whose compensation level 
was among the five highest paid during the reporting period. The intent 
of this extension was to ensure that System banks and associations 
provide shareholders with necessary compensation information on highly 
compensated employees even though they did not fall within the 
regulatory definition of ``senior officer.'' The intent was not to 
provide compensation information on employees who would only reach the 
``highly compensated'' threshold solely because of payments related to 
or change(s) in the value of a qualified pension plan that was 
available to all employees on the same basis at the time they joined 
the plan. We believe that application of the existing rule could create 
such an unintended effect and reduce the effectiveness of the 
disclosure.
    Therefore, on November 17, 2014, we proposed amending existing 
Sec.  620.6(c)(2)(i) to exclude reporting employees' compensation in 
the Table if the employees were not senior officers and would be 
considered highly compensated employees solely because of payments 
related to or change(s) in value of the employees' qualified pension 
plans provided that the plans were available to all employees on the 
same basis at the time the employee joined the plan.

III. Comments and Our Response

    The comment period for the proposed rule closed on December 17, 
2014 (79 FR 68376, Nov. 17, 2014). We received four comment letters on 
our proposed rule: One comment letter from the Independent Community 
Bankers of America (ICBA), responding on behalf of its members; one 
comment from a Farm Credit bank (FCB); one comment letter from a System 
association; and one comment letter from the Farm Credit Council, 
responding on behalf of its members. Two commenters supported the 
proposed rule, one supported it with suggested changes, and one opposed 
the rule. In the discussion below, we address the significant comments. 
After careful consideration of the comments, the proposed rule is 
finalized without any changes.

A. Transparency and Quality of Disclosure

    The ICBA opposes the proposed rule and urges the FCA to withdraw 
the proposed rule or adopt the ICBA's recommendations. The ICBA asserts 
that the proposed rule reduces transparency of pension disclosures to 
System shareholders and seeks to allow System institutions to hide 
significant enhancements to pensions and other compensation 
arrangements by not disclosing them. We agree with the ICBA that 
employee compensation should be reported in this disclosure item if the 
employee's compensation reaches the highly compensated employee 
threshold due to large or significant bonuses and other such payments. 
As we explained in the proposed rule, however, there would be no 
reporting requirement for this disclosure item solely for employees

[[Page 10326]]

who are not senior officers and who would not otherwise be considered 
``highly compensated employees'' but for payments related to or 
change(s) in the value of the employee's qualified pension plan. Also, 
the qualified plan must have been available to all employees on the 
same basis at the time the employee joined the plan. Thus, the proposed 
rule did not seek to change the current reporting requirement regarding 
payments such as those concerning the ICBA. Rather, if any such payout 
to the employee or change(s) in value to their plan is due to a benefit 
plan that is not a qualified plan and the plan was not offered to all 
employees on the same basis when the employee joined the plan, then the 
payout or change(s) in value would be included in determining whether 
the employee's compensation reached the five highest paid threshold. 
Thus, we believe that the proposed rule increases the effectiveness and 
transparency of the disclosure and better achieves the original intent 
of the rule, which we did not change.
    The ICBA also expressed concern that large one-time lump sum 
payments made to numerous employees at the same time from a qualified 
pension plan that was available to all employees on the same basis at 
the time they joined the plan could represent significant cash outlays 
for the institution during a reporting period. The ICBA believes that 
System institution owners should be made aware of these payouts. We 
agree with the ICBA and would expect that such payouts be included in 
the financial statements or notes thereto or discussed in the 
management's discussion and analysis section of the annual report if 
material to the institution's financial condition and results of 
operations. As discussed above, the intent of this specific disclosure 
item was not and is not to include such payments in the calculation of 
the top five highest paid employees.
    In its comment letter, the ICBA also makes a number of 
recommendations, such as to disclose all employees' compensation if 
that compensation exceeds the average income of the citizens in the 
surrounding geographic area, or to disclose the compensation for the 
twenty-five (25) highest paid employees for larger System institutions. 
We believe these recommendations go beyond the scope of the proposed 
rule and cannot be addressed in this rulemaking.

B. Explanatory Notes and Method of Compliance

    The FCB, the Farm Credit Council, and the System association 
supported our proposed rule in their comment letters. Furthermore, they 
expressed that our proposal improves the disclosure language and aligns 
it with the intended purpose. The FCB also offered two constructive 
suggestions. The first suggestion was to allow System institutions 
affected by our proposed rule to disclose in a note to the Table that 
the calculation formula changed and describe the reason for the change 
and its effects. Also, because data is reported in the Table for 3 
years, the FCB's second suggestion was that each System institution be 
allowed to choose the method of compliance that works best for that 
institution's situation. We agree with the suggestion regarding 
explanatory notes, but do not believe a change to our proposal is 
necessary. Such disclosure is not prohibited so long as the disclosure 
is not misleading, incomplete or inaccurate. Whether a System 
institution opts to restate one or all of the prior years' disclosures 
or to report the data prospectively beginning for fiscal year ending 
2015, we would expect that any change in the method of calculations 
versus prior years' disclosures be described in a footnote to the Table 
to the extent needed so that the reported data will not be misleading 
or incomplete. Therefore, we agree with the FCB's suggestion to the 
extent that the 3-year reporting period raises issues for affected 
institutions, but we do not believe that a change to the regulation 
language is necessary. We have addressed this issue in the compliance 
date information.

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule would 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities. 
Therefore, Farm Credit System institutions are not ``small entities'' 
as defined in the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.
    For the reasons stated in the preamble, part 620 of chapter VI, 
title 12 of the Code of Federal Regulations is amended as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

0
1. The authority citation for part 620 continues to read as follows:

    Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.19 of the Farm Credit 
Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 424 of 
Pub. L. 100-233, 101 Stat. 1568, 1656, sec. 514 of Pub. L. 102-552, 
106 Stat. 4102.


0
2. Section 620.6(c)(2)(i) is revised to read as follows:


Sec.  620.6  Disclosures in the annual report to shareholders relating 
to directors and senior officers.

* * * * *
    (c) * * *
    (2) * * *
    (i) If applicable, when any employee who is not a senior officer 
has annual compensation at a level that is among the five highest paid 
by the institution during the reporting period, include the highly 
compensated employee(s) in the aggregate number and amount of 
compensation reported in the Compensation Table. However, exclude any 
such employee from the Compensation Table if the employee would be 
considered highly compensated solely because of payments related to or 
change(s) in value of the employee's qualified pension plan provided 
that the plan was available to all similarly situated employees on the 
same basis at the time the employee joined the plan.
* * * * *

    Dated: February 19, 2015.
Mary Alice Donner,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 2015-04023 Filed 2-25-15; 8:45 am]
BILLING CODE 6705-01-P