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[Federal Register Volume 89, Number 247 (Thursday, December 26, 2024)]
[Rules and Regulations]
[Pages 104865-104877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-30449]

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 741

RIN 3133-AF42

Succession Planning

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is issuing this final rule to further 
strengthen succession planning efforts for all consumer federally 
insured credit unions (FICUs). This final rule requires that a FICU 
board of directors establish a written succession plan that addresses 
specified positions and contains certain information. In addition, the 
board of directors is required to regularly review the succession plan. 
The final rule also requires that newly appointed members of the board 
of directors have a working familiarity with the succession plan no 
later than six months after appointment. The final rule follows 
publication of a July 25, 2024, proposed rule and takes into 
consideration the public comments received on the proposed rule. In 
response to comments, the Board has amended the proposal to provide 
that a credit union board must review its succession plan no less than 
every 24 months, as opposed to the annual review that would have been 
required under the proposed rule. The Board has also revised the 
proposed rule by removing loan officers, credit committee members, and 
supervisory committee members from the list of FICU officials that must 
be covered by the succession plans. In addition, non-substantive 
changes have been made to the wording used in the list of covered 
officials for purposes of clarity. The final rule also streamlines the 
required contents of the succession plans and no longer requires that 
deviations from approved succession plans be documented in the FICU 
board's meeting minutes. Further, to help ensure that FICUs have the 
necessary time to develop their succession plans, the Board is delaying 
the effective date of the final rule until January 1, 2026.

DATES: This final rule is effective on January 1, 2026.

FOR FURTHER INFORMATION CONTACT: Office of Examination and Insurance: 
John Berry, Policy Officer, at (703) 664-3909 or at 1775 Duke Street, 
Alexandria, VA 22314. Office of General Counsel: Ariel Pereira, Senior 
Attorney, Office of General Counsel, at (703) 548-2778 or at the above 
address.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion of Public Comments
    A. The Comments, Generally
    B. Comments Regarding Alternatives to Rulemaking
    C. Comments Regarding Data and the Justification for Rulemaking
    D. Comments Regarding Regulatory Burden
    E. Comments Raising General Objections to Rule
    F. Comments Regarding the Inclusion of FISCUs
    G. Comments Raising Potential Privacy and Discrimination 
Concerns
    H. Comments Regarding Specific Rule Provisions
    I. Other Comments
III. Regulatory Procedures
    A. Regulatory Flexibility Act
    B. Small Business Regulatory Enforcement Fairness Act/
Congressional Review Act
    C. Paperwork Reduction Act
    D. Executive Order 13132 on Federalism
    E. Assessment of Federal Regulations and Policies on Families

I. Background

    At its July 18, 2024, meeting, the Board approved a proposed rule 
to address succession planning at FICUs. The proposed rule was 
published in the Federal Register on July 25, 2024, and provided for a 
60-day public comment period.\1\ The proposal followed publication of 
the Board's earlier 2022 proposed rule on the same topic.\2\ The July 
25, 2024, proposed rule was based on that earlier proposed rule but 
included several changes that the Board believed would further 
strengthen succession planning efforts for both consumer federal credit 
unions (FCUs) and consumer federally insured, state-

[[Page 104866]]

chartered credit unions (FISCUs), which collectively are referred to as 
FICUs.
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    \1\ 89 FR 60329 (July 25, 2024).
    \2\ 87 FR 6078 (Feb. 3, 2022).
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    Under the July 25, 2024, proposed rule a FICU board of directors 
would have been required to establish a written succession plan that 
addresses specified positions and contains certain information. In 
addition, the board of directors would have been required to review the 
succession plan in accordance with an established schedule, but no less 
than annually. The proposed rule would also have required that newly 
appointed members of the board of directors have a working familiarity 
with the FICU's succession plan no later than six months after 
appointment. Interested readers are referred to the preamble of the 
proposed rule for additional details regarding the proposed regulatory 
amendments.
    Two ongoing factors highlighted the need for rulemaking on 
succession planning. The long-running trend of consolidation across all 
depository institutions has remained relatively constant across all 
economic cycles for more than three decades. Voluntary mergers can be 
used to create economies of scale to offer more or better products and 
services to FICU members. However, the Board is also aware of numerous 
instances in recent years where FICUs merged because of a lack of 
succession planning. More emphasis on succession planning would help 
reduce the number of such mergers.
    Another reason for a heightened focus on succession planning are 
the ongoing retirements of the ``Baby Boomer'' generation (individuals 
born between 1946 and 1964). According to some sources, approximately 
10 percent of credit union chief executive officers were expected to 
retire between 2019 and 2021.\3\ Succession planning is critical to the 
continued operation of those credit unions with board members and 
executives that are part of this retirement wave.
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    \3\ CUtoday.info, CUNA ACUC Coverage: What's Happening in 
Executive Compensation (June 19, 2019), https://www.cutoday.info/Fresh-Today/CUNA-ACUC-Coverage-What-s-Happening-in-Executive-Compensation.
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    Given the importance of the topic, the NCUA has taken several steps 
to strengthen current succession planning efforts of FICUs. For 
example, in March 2022 the NCUA issued Letter to Credit Unions 22-CU-
05, CAMELS Rating System, which provides that ``succession planning for 
key management positions'' is a key factor considered when assessing 
the Management CAMELS component rating of a credit union.\4\ Letter to 
Credit Unions 23-CU-01 included succession planning as one of the 
NCUA's supervisory priorities for 2023.\5\ The July 25, 2024, proposed 
rule was designed to build upon these prior NCUA efforts.
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    \4\ NCUA, Letter to Credit Unions 22-CU-05, CAMELS Rating System 
(March 2022), https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/camels-rating-system. CAMELS is the 
acronym for the rating system used by the NCUA to assess a FICU's 
performance and risk profile derived from the six critical elements 
of a FICU's operations: Capital adequacy, Asset quality, Management, 
Earnings, Liquidity, and Sensitivity to Market Risk.
    \5\ NCUA, Letter to Credit Unions 23-CU-01, NCUA's 2023 
Supervisory Priorities (January 2023), https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/ncuas-2023-supervisory-priorities.
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    This final rule follows publication of the July 25, 2024, proposed 
rule and takes into consideration the public comments received on the 
proposed rule. In this final rule, the Board has incorporated the 
following amendments to the July 25, 2024, proposal:
    1. In response to public comments, the final rule provides that a 
board must review its succession plan no less than every 24 months, as 
opposed to the annual review that would have been required under the 
proposed rule.
    2. Also in response to public comments, the Board has revised the 
proposed rule by removing loan officers, credit committee members, and 
supervisory committee members from the list of FICU officials who must 
be covered by the succession plans.
    3. In addition, non-substantive changes have been made to the 
wording used in the list of covered officials for purposes of clarity. 
Specifically, the proposed rule listed ``management officials'' (as 
defined in the model FCU bylaws) and the ``senior executive officers'' 
identified in 12 CFR 701.14(b)(2). Given the potential overlap between 
these two categories of officials, the final rule merges their listing 
in a single paragraph of the regulation. The final rule also simplifies 
the regulatory text by cross referencing to Sec.  701.14(b)(2), rather 
than listing the senior executive officers.
    4. The final rule also streamlines the required contents of the 
succession plans. Specifically, the rule no longer specifies that a 
succession plan must address unexpected or temporary vacancies in 
covered positions. Although the Board encourages a FICU to consider 
these types of vacancies in its plan, it believes FICUs, and not the 
NCUA, are best positioned to determine how much detail is necessary to 
address the required plan elements.
    5. The final rule no longer requires that deviations from approved 
succession plans be documented in the FICU board's meeting minutes.
    6. The final rule also makes a few technical, non-substantive, 
edits for clarity and precision of language.
    The final rule otherwise adopts the proposed regulatory 
requirements. FICUs are reminded that succession plans should include 
an estimate of the budgetary impacts of executing the succession plan, 
including costs associated with new hires, such as any hiring of 
recruitment firms and any increased compensation packages for new 
hires. Credit unions are not required to have an exact figure for any 
such anticipated costs, but at a minimum should provide an estimate to 
allow for better planning.
    To help ensure that FICUs have the necessary time to develop their 
succession plans, the Board is delaying the effective date of the final 
rule until January 1, 2026. This rule will be reapproved three years 
after its effective date for a term of the Board's choosing.

II. Discussion of Public Comments

    The comment period on the proposed rule closed on September 23, 
2024. The NCUA received 187 public comments on the proposal. Comments 
were received from individual FICUs, state and regional credit union 
organizations, credit union trade organizations, credit union 
consulting services providers, and individuals. Approximately 116 of 
the comments were form letters with nearly identical wording. The 
issues raised in the form letters were similar to those made in many of 
the other comment letters. This section of the preamble summarizes the 
significant issues raised by the commenters and the Board's responses 
to these comments.

A. The Comments, Generally

    The majority of commenters, while acknowledging the importance of 
succession planning and agreeing with the intent of the proposed rule, 
raised concerns about the need for succession planning regulations, as 
well as some of the specifics of the proposed regulatory amendments.
    As discussed in greater detail in the following paragraphs, the 
large majority of the commenters questioned the need for succession 
planning regulations. Some of these commenters objected that the NCUA 
was overstepping its regulatory authority by issuing regulations on 
internal management matters best left to credit union discretion. Other 
commenters wrote that the NCUA already has tools capable of addressing 
succession planning, or that the topic could be better addressed 
through non-regulatory guidance. These

[[Page 104867]]

commenters also noted that the other federal banking regulatory 
agencies have elected to address succession planning through guidance. 
Commenters also objected to the inclusion of FISCUs and noted potential 
conflicts with state requirements.
    A majority of the commenters also questioned the data cited in the 
preamble of the proposed rule as justification for the rulemaking. 
These commenters objected that the data was stale, and that more recent 
data did not seem to support the need for succession planning 
regulations to prevent FICU consolidations. The commenters also wrote 
that the NCUA had underestimated the time and resources required for 
complying with the proposed requirements, and that the rule would 
impose an undue compliance burden. Many commenters wrote that the 
burden of complying with the rule would actually increase the number of 
consolidations. Still others wrote that the NCUA's goal of reducing 
FICU consolidations was misguided.
    With regard to the specific amendments, many commenters objected to 
the list of officials covered by the succession plans, writing that it 
was overly inclusive for the stated purposes of the rulemaking. Other 
commenters were concerned about the possibility that succession plans 
might be publicly posted, potentially raising privacy or age-
discrimination issues. Some commenters wrote that requiring boards to 
review their succession plans at least annually was unnecessarily 
prescriptive. Commenters also expressed concerns about the proposed 
board education requirements and requested clarification of other 
provisions.

B. Comments Regarding Alternatives to Rulemaking

    Comment: Guidance is more appropriate than rulemaking. The majority 
of commenters urged the Board to consider issuing guidance regarding 
succession planning as an alternative to rulemaking. While generally 
agreeing that succession planning is an important element of a FICU's 
overall strategic planning process, the commenters wrote that a rule 
would only add to growing regulatory burden imposed on FICUs. The 
commenters noted that the issuance of guidance is consistent with the 
approach taken by the other federal banking regulatory agencies. The 
commenters wrote that the banking industry faces consolidation trends 
similar to those of credit unions. Nonetheless, the other banking 
agencies have opted to issue guidance regarding succession planning 
instead of undertaking rulemaking.
    NCUA Response. The Board continues to believe that rulemaking on 
succession planning is appropriate and necessary. While guidance can be 
helpful in describing sound practices or clarifying existing 
requirements, the lack of a regulation means there is no requirement 
that FICUs implement a formal, written succession plan. As a result, 
the NCUA lacks a full complement of regulatory tools to help address 
deficiencies in a FICU's succession planning process. The absence of 
specific regulations on this topic also means there are no requirements 
as to what constitutes an acceptable succession plan. A regulation is 
therefore necessary to establish a clearly articulated, consistent, and 
enforceable set of succession planning standards.
    Comment: Succession planning is already addressed under CAMELS. 
Several commenters wrote that the rule is redundant since succession 
planning is part of every examination under the CAMELS rating system. 
The commenters noted that the CAMELS ``Management'' component already 
considers succession planning for ``key management positions.'' The 
commenters wrote that this is consistent with the practice of the other 
federal banking regulatory agencies, which require their examiners to 
conduct a high-level assessment of banks' succession planning in their 
rating of the capability and performance of management. The commenters 
noted that the examination process is the ideal time to discuss with a 
board of directors any weaknesses that exist in this area.
    NCUA Response. The NCUA does assess succession planning as part of 
the CAMELS Management component. However, as supervisory guidance, the 
Letter to Credit Unions that established CAMELS does not provide the 
NCUA with the authority necessary to fully address any inadequacies in 
a FICU's succession planning practices and procedures. Letter to Credit 
Unions 23-CU-01 establishing the 2023 supervisory priorities 
acknowledges these limitations. For example, the letter makes clear 
that NCUA examiners are precluded from evaluating ``any formal or 
informal succession plans developed by credit unions beyond what would 
normally be considered in assigning the Management component of the 
CAMELS rating.'' \6\ Moreover, examiners may ``not issue an Examiner's 
Finding or Document of Resolution if the credit union has not conducted 
succession planning, or the planning is not adequate, unless the credit 
union is in violation of its own policy for conducting succession 
planning or administering any such plan(s).'' \7\ Accordingly, the NCUA 
continues to believe that rulemaking is necessary to establish clear, 
consistent, and enforceable succession planning standards.
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    \6\ Id.
    \7\ Id.
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    Comment: Succession plan requirements are duplicative of disaster 
program guidelines. Several commenters noted that under the NCUA 
guidelines codified in 12 CFR part 749, appendix B, all FICUs are 
encouraged to develop a program to prepare for a catastrophic act. As a 
part of this planning and program development, FICUs distinguish the 
roles of the FICU's leadership and the board of directors, as well as 
backup personnel for various roles. The commenters wrote that the 
succession plan requirements are in many ways duplicative of the 
disaster guidelines and therefore unnecessarily add regulatory 
compliance burden.
    NCUA Response. The Board acknowledges that, as a result of other 
planning and documentation efforts, many FICUs may already have data 
and information that is useful to completing their succession plans. 
FICUs are encouraged to use such existing information, where 
appropriate, in preparing their succession plans. Further, the preamble 
to the July 25, 2024, proposed rule notes that the catastrophic act 
guidelines may address several elements that are also relevant to 
succession planning. These suggested elements include a ``business 
impact analysis to evaluate potential threats,'' the determination of 
``critical systems and necessary resources,'' and the identification of 
the ``[p]ersons with authority to enact the plan.'' \8\
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    \8\ 89 FR 60329, at 60334.
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    However, the Board does not agree that these codified guidelines 
are a suitable alternative to this final rule. For one thing, the 
guidelines are non-regulatory in nature and therefore do not establish 
the enforceable standards that, as discussed in the preceding 
responses, the Board has determined are necessary for succession 
planning. Further, the guidelines are broader in scope than, and only 
tangentially related to, succession planning. The guidelines are 
intended to ensure the continued operations of a FICU in response to an 
external, unforeseen, and hopefully infrequent event, whereas 
succession planning is meant to address the ongoing retention and 
recruitment

[[Page 104868]]

cycle institutions face, including for critical positions and those 
that have significant influence and impact on a FICU's operations. The 
guidelines are therefore not an adequate substitute for regulations 
that specifically address FICU succession planning practices.
    Comment: The Call Report offers an alternative means of 
implementing succession planning. Several commenters wrote that the 
NCUA could determine the existence of a succession plan at FICUs by 
asking the question on the 5300 Call Report. Because Call Reports must 
be submitted quarterly, the NCUA will always have up-to-date 
information on a FICU's succession plan. The Call Report is a way for 
FICUs to report to the NCUA a big picture of what is going on at their 
credit union and to document any potential risk areas.
    NCUA Response. While the suggestion made by the commenters could 
potentially serve as a means of notifying the NCUA whether a FICU has 
adopted a succession plan, it fails to ensure that FICUs adopt plans 
and would not address the quality of those plans. The final rule will 
clearly communicate the NCUA's expectations regarding succession 
planning and establish enforceable standards for determining the 
sufficiency of the plans. Accordingly, the Board has not revised the 
proposed rule in response to these comments.

C. Comments Regarding Data and the Justification for Rulemaking

    Comment: The NCUA relied on outdated or limited data to justify the 
proposed rule. The majority of commenters objected to the data cited in 
the preamble as justification for the rulemaking. Among other data, the 
preamble cites to a 2014 NCUA analysis that found that poor succession 
planning was either a primary or secondary reason for almost a third 
(32 percent) of FICU consolidations.\9\ The commenters objected to the 
fact that the analysis dates from over a decade before the publication 
of this proposed rule and includes the years immediately following the 
2007-2008 global financial crisis, which they said was likely a 
compounding factor in FICU consolidations. Several of the commenters 
pointed to a more recent NCUA analysis of mergers between 2017 and 
2021, which found that an ``inability to obtain officials'' was the 
primary cause for under 3 percent of mergers.\10\ Other commenters 
wrote that, based on NCUA data, of the 149 mergers occurring during the 
second half of 2023 and first half of 2024, only 11 cited the inability 
to obtain officials as the reason for the merger.
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    \9\ 89 FR 60329, at 60330, footnote 16 citing to: NCUA, Truth in 
Mergers: A Guide for Merging Credit Unions, page 9, https://ncua.gov/files/publications/Truth-In-Mergers.pdf.
    \10\ https://ncua.gov/regulation-supervision/manuals-guides/lessons-learned-mergers.
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    The commenters also objected to the preamble language stating that 
the 2014 findings had been corroborated by industry participants.\11\ 
The commenters wrote that the article includes information on only 10 
mergers with only a few of the credit unions citing a lack of 
succession planning as a factor in the merger.
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    \11\ 89 FR 60329, at 60330.
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    NCUA Response. As an initial matter, and as noted in the preamble 
to the proposed rule, the Board's justification for issuing this final 
rule is based not only on the data but also on the Board's finding that 
``the need for succession planning as a sound governance practice [is] 
equally compelling.'' \12\ The Board found ``that a compelling safety 
and soundness case exists for rulemaking in this area,'' because the 
failure to adequately plan for changes in leadership can jeopardize the 
continued viability of a FICU and disrupt safe and sound operations 
upon the departure of key personnel.\13\ The safety and soundness 
rationale for this rulemaking remains even if the concerns raised by 
the commenters were valid. However, the commenters' categorization of 
the data cited in the preamble is incorrect.
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    \12\ 89 FR 60329, at 60332.
    \13\ 89 FR 60329, at 60330.
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    The fact that some of the mergers included in the NCUA's 2014 
analysis occurred during the global financial crisis in no way 
diminishes the validity of the study. Indeed, the analysis acknowledges 
that the FICU's weak financial condition was the primary or secondary 
cause for 78 percent of the consolidations, the largest cause for 
mergers during the ten-year period under review (2003 to 2012). The 
fact that during that same period the lack of adequate succession 
planning was still cited as a primary or secondary cause for 32 percent 
of mergers only serves to underscore the need for rulemaking in this 
area.
    Neither does the Board believe that the NCUA's more recent analysis 
of mergers between 2017 and 2021 undermines the earlier study. The 2014 
study specifically analyzed succession planning, while the more recent 
study looked at ``inability to obtain officials.'' While this inability 
could be partially due to the lack of a succession plan, it might also 
encompass other factors deterring potential candidates, such as the 
FICU's inability to offer a competitive compensation package, 
reputational and operational obstacles to hiring, or geographic 
undesirability. A succession plan is critical to addressing such 
factors, but it is not a guarantee, especially when the FICU is faced 
with a sudden or unexpected leadership vacancy. The more recent study's 
utility to inform this rulemaking is thus limited by the fact that it 
does not distinguish between those mergers occurring because of a lack 
of succession planning and those that happened despite the FICU's best 
efforts in this regard.
    The Board also rejects the objections raised by the commenters 
regarding the news articles cited in support of the proposition that 
the merger ``data has been corroborated by industry participants.'' The 
commenters object to the number of mergers discussed in the articles. 
However, the footnote citation was included simply to illustrate the 
credit union industry's general recognition that a failure to plan for 
succession is a contributing factor in consolidations. The footnote was 
included to complement the data and rationale set forth in the main 
text of the preamble rather than as an independent data source for the 
rulemaking.
    Comment: The proposed rule will have the unintended consequence of 
increasing the number of consolidations. Many commenters wrote that, 
contrary to the proposed rule's stated goal of mitigating the effects 
of industry consolidation, it would actually lead to an increased 
number of mergers. The majority of these commenters focused on the 
additional regulatory burden of complying with the proposed rule, 
especially on smaller FICUs. The commenters wrote the additional time 
and resources required to comply with the proposed rule might lead 
smaller FICUs to conclude that a merger with a larger institution is 
the most sustainable path forward. One commenter wrote that the 
succession planning process might force smaller FICUs to confront 
challenging realities about their future prospects, such as their 
limited internal talent pools and the inability to offer competitive 
salaries or advancement opportunities. The commenters also expressed 
concerns that the preamble language noting that smaller FICUs might 
benefit from the assistance of larger FICUs in developing and 
implementing their succession plans could inadvertently result in 
mergers.\14\
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    \14\ 89 FR 60329, at 60334.

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[[Page 104869]]

    NCUA Response. The Board disagrees with the commenters that 
implementation of this final rule will increase the number of FICU 
consolidations. In the 2014 analysis of mergers discussed previously, 
FICUs did not identify regulatory compliance burden as a cause of 
mergers. The closest analogue among the listed causes--``recordkeeping 
burden''--was cited by only two percent of FICUs as either a primary or 
secondary cause for consolidation. In the more recent NCUA analysis for 
mergers occurring between 2017 and 2021, regulatory burden was not 
included among the 11 listed causes for mergers (the term 
``recordkeeping burden'' also did not appear). The NCUA is not aware of 
other data that supports the claims made by the commenters, and such 
data was not offered in the comments.
    The Board also notes that it has taken several steps to ease the 
burden imposed on FICUs by the new requirements. For example, the NCUA 
has posted a video series on succession planning on the internet.\15\ 
In addition, the Board has developed a sample template for a succession 
plan that may be appropriate for some smaller FICUs, though all FICUs 
may benefit from it. The Board has also revised the proposed rule by 
removing loan officers, credit committee members, and supervisory 
committee members from the list of FICU officials who must be covered 
by succession plans. This should further minimize burden by enabling 
FICUs to develop more appropriately tailored succession plans that 
better reflect their unique circumstances. Further, the Board is 
delaying effectiveness of the final rule until January 1, 2026, which 
should also decrease burden by providing FICUs with additional time to 
make any operational changes or resource allocations necessary for 
development of the succession plans.
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    \15\ NCUA, Succession Planning (2021), https://ncua.csod.com/LMS/catalog/Welcome.aspx?tab_page_id=-67&tab_id=221000382.
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    As noted by the commenters, the preamble to the proposed rule 
discussed that smaller FICUs may also benefit from seeking the 
assistance of larger and more sophisticated FICUs in developing and 
implementing their succession plans. For example, a larger FICU may 
provide technical expertise in the drafting of the plan or may detail 
personnel to temporarily fill a critical vacancy in a smaller credit 
union until such time as it is permanently filled. The Board recognizes 
the concerns raised by the commenters that such strategic partnerships 
between a larger and smaller FICU may sometimes lead to a merger. 
However, that is an individual decision that must be made by the FICUs 
involved, based on their specific facts and circumstances.
    Comment: The goal of preventing consolidations is misplaced. 
Several commenters objected to the preamble language citing increased 
consolidations as a driving factor for the rule. The commenters wrote 
that the NCUA has historically been agnostic on the appropriateness of 
a merger for a particular FICU, leaving the decision to the FICU's 
management and membership. One commenter noted that there are 
situations where a smaller FICU may propose a merger as a key component 
of its succession plan. The commenters wrote that in some instances a 
merger may be the best approach for a FICU and its members. The 
commenters wrote that the decision to merge should therefore be left to 
the FICU.
    NCUA Response. One of the Board's stated goals in undertaking this 
rulemaking is to reduce the number of unplanned or forced mergers 
resulting from a FICU's failure to adequately plan for changes in 
leadership. However, the Board agrees with the commenters that 
voluntary mergers can be used by FICUs to achieve various objectives, 
including creating economies of scale to offer more or better products 
and services to members. The reasons for voluntarily merging vary by 
FICU. For example, mergers may be a strategic decision as part of the 
continuing credit union's growth strategy, while the merging credit 
union's management may be seeking to expand services for the members. 
This final rule does not change the Board's longstanding position that, 
to the extent any such decision meets the applicable statutory and 
regulatory requirements, the determination of whether a merger is 
appropriate is best left to the particular FICU's management and 
membership.

D. Comments Regarding Regulatory Burden

    Comment: The NCUA underestimated the regulatory burden imposed by 
succession planning. Many commenters wrote that the proposed rule 
underestimated the amount of time FICUs would be required to spend 
ensuring compliance with the succession plan requirements. The 
Paperwork Reduction Act (PRA) statement contained in the proposed rule 
estimated about 10 hours per year per FICU.\16\ The commenters wrote 
that this estimate failed to adequately account for all of the time and 
cost that would be incurred to understand the regulatory requirements 
and formulate strategies for filling vacancies. The commenters also 
objected that the estimate did not sufficiently consider the resources 
required to regularly audit and update the plans, including examiner 
consultations. One commenter pointed to a proposed rule issued by 
another federal banking regulatory agency addressing succession 
planning and noted that agency estimated 40 annual hours for plan 
development and 20 hours for annual reviews.\17\
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    \16\ 89 FR 60329, at 60335. The PRA is codified at 44 U.S.C. 
3501-3520, and the implementing regulations issued by the Office of 
Management and Budget are located at 5 CFR part 1320.
    \17\ See, Federal Deposit Insurance Corporation, Guidelines 
Establishing Standards for Corporate Governance and Risk Management 
for Covered Institutions with Total Consolidated Assets of $10 
Billion or More, 88 FR 70391 (Oct. 11, 2023) (to be codified at 12 
CFR parts 308, 364). https://www.federalregister.gov/documents/2023/10/11/2023-22421/guidelines-establishing-standards-for-corporate-governance-and-risk-management-for-covered.
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    NCUA Response. The information provided in the proposed rule 
represents the NCUA's best estimate of the information collection 
burden associated with the succession planning requirements. As with 
all PRA collections of information, the estimates of the associated 
burden may change over time as the agency and regulated entities gain 
experience with implementation. Under the PRA regulations, Office of 
Management and Budget (OMB) approval of an agency collection of 
information is subject to periodic renewal through a notice and comment 
process.\18\ The Board is committed to ensuring the accuracy of its PRA 
burden estimates, and the information collections established by this 
final rule are subject to such process.
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    \18\ 5 CFR 1320.10. Under Sec.  1320.10(b), OMB will not approve 
a collection of information for a period longer than three years.
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    The estimate noted by the commenters that was provided in the 
proposed rule issued by another federal banking agency does not provide 
a useful comparison. Under its own terms, that rulemaking applies 
solely to covered institutions with total consolidated assets of $10 
billion or more. According to the most recent quarterly data available 
to the NCUA, there were only 21 FICUs in this asset category as of the 
second quarter in 2024.\19\ These institutions are far larger than most 
FICUs, and their succession plans would necessarily reflect their

[[Page 104870]]

size and operational complexity. In contrast, the vast majority of 
FICUs would have more streamlined succession plans. Further, and as 
noted in a preceding response, the NCUA has made available several 
resources to ease the burden imposed by this final rule, including an 
optional plan template. The estimated information collection burden 
reflects the availability of these resources.
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    \19\ NCUA, Financial Trends in Federally Insured Credit Unions 
2024 Q2, page iii, available at: https://ncua.gov/files/publications/analysis/quarterly-data-summary-2024-Q2.pdf.
---------------------------------------------------------------------------

    Comment: The proposed rule will unduly increase regulatory burden, 
especially on smaller FICUs. Several commenters wrote that FICU 
resources are already under strain and the proposed rule would only 
serve to add to the cumulative regulatory burden faced by FICUs. The 
commenters wrote that, given the complexity of the business environment 
over the past several years and the pressures on the industry's 
business model in general, the NCUA should tread lightly in adding to 
the list of requirements. The commenters expressing these concerns were 
particularly focused on the regulatory burden imposed on smaller FICUs 
that lack the resources and staff available to larger institutions.
    NCUA Response: The Board is mindful of the regulatory burden 
imposed by its regulations and is committed to providing assistance and 
resources to help FICUs comply with their regulatory obligations. The 
NCUA currently offers training and other resources to aid FICUs in 
developing their succession plans. As noted, the NCUA has posted a 
video series on succession planning on the internet.\20\ FICUs with a 
low-income designation may be able to apply for technical assistance 
grants to support succession planning or offset training costs through 
the Community Development Revolving Loan Fund. As also previously 
discussed, FICUs may use already existing information in preparing 
their plans. FICUs are encouraged to make use of these and other 
available resources in complying with the proposed rule. The Board has 
also narrowed the list of FICU officials that must be covered by the 
plans, enabling FICUs to develop succession plans that better reflect 
their unique circumstances. Further, the Board is delaying the 
effective date of the final rule until January 1, 2026, which will 
provide FICUs with additional time to develop their succession plans.
---------------------------------------------------------------------------

    \20\ Supra, note 15.
---------------------------------------------------------------------------

    The Board is especially mindful of the burden imposed on smaller 
FICUs, as they may lack the resources or expertise to develop 
succession plans. Accordingly, smaller FICUs may especially benefit 
from the existing resources identified above. The NCUA's Small Credit 
Union and Minority Depository Institution Support Program is another 
available resource through which FICUs with less than $100 million in 
total assets and minority depository institutions of any size may seek 
assistance in a variety of areas, including succession planning. In 
addition, the Board again notes that it has developed a sample template 
for a succession plan that may be appropriate for smaller FICUs, though 
all FICUs may benefit from it. FISCUs electing to use the template 
should consult applicable state requirements to ensure their succession 
plans are consistent with any such requirements.
    Comment: Classification of the rule as ``major'' under the 
Congressional Review Act. One comment expressed concern that the NCUA 
might not classify the rule as ``major'' for purposes of the 
Congressional Review Act (CRA).\21\ A rule that is ``major'' under the 
CRA may take effect no earlier than 60 calendar days after the Congress 
receives the statutorily prescribed rule report from the agency or the 
rule is published in the Federal Register, whichever is later. The 
commenter was concerned that not classifying the rule as ``major'' 
would underestimate the true impact of the succession planning 
requirements, particularly on smaller FICUs.
---------------------------------------------------------------------------

    \21\ 5 U.S.C. 801-808. The CRA was included as part of the Small 
Business Regulatory Enforcement Fairness Act, Public Law 104-121 
(March 29, 1996).
---------------------------------------------------------------------------

    NCUA Response. The NCUA acknowledges its obligations under the CRA. 
As required by the CRA, the NCUA has submitted this final rule to OMB 
for it to determine if the final rule is a ``major rule.'' The NCUA 
also will file appropriate reports with Congress and the Government 
Accountability Office (GAO) so this rule may be reviewed.
    The CRA defines a major rule as one that has resulted in or is 
likely to result in (A) an annual effect on the economy of $100,000,000 
or more; (B) a major increase in costs or prices for consumers, 
individual industries, federal, state, or local government agencies, or 
geographic regions; or (C) significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based enterprises to compete with foreign-based 
enterprises in domestic and export markets. The CRA vests the ultimate 
decision as to whether this final rule qualifies as ``major'' with OMB. 
However, the Board does not believe that this final rule meets the 
definition of a ``major rule'' under the CRA.
    While the final rule may impose some additional costs on FICUs, it 
is unlikely that these costs would rise to the $100 million required 
under the CRA definition of a ``major rule.'' The Board also believes 
that several factors mitigate the potential costs imposed on FICUs. For 
example, the Board is providing a sample template for a simple 
succession plan that may be appropriate for some FICUs. Many FICUs have 
already adopted succession plans, and these existing plans should 
already address at least some of the elements required by the final 
rule, thereby minimizing the cost of complying with the new 
requirements. As previously noted, the NCUA also offers training and 
other resources to aid credit unions in developing their succession 
plans. FICUs are also encouraged to use already existing information in 
preparing their plans, such as the data used to develop the recommended 
program to prepare for a catastrophic act. These resources should 
further reduce the costs of preparing succession plans.
    Neither does the Board believe that the final rule meets the second 
and third prongs of the CRA ``major rule'' definition. The final rule 
imposes new reporting requirements that will not directly impact 
consumer costs for the financial products offered by FICUs. Nor are 
these reporting requirements likely to drive up costs for the credit 
union industry, governments, or geographic regions. The effects of the 
new requirements are also unlikely to significantly affect employment, 
competition, investment, or innovation, as contemplated under the CRA.

E. Comments Raising General Objections to Rule

    Comment: The proposed rule constitutes regulatory overreach. 
Several commenters wrote that, while it is the NCUA's responsibility to 
supervise credit unions so as to protect the safety and soundness of 
the credit union system, the proposed rule oversteps the agency's 
regulatory authority. The commenters wrote that succession planning is 
appropriately the fiduciary responsibility of a FICU's board of 
directors as only an individual FICU can determine the appropriate 
timing and extent of succession planning needed to preserve the health 
of the FICU and its members. The commenters worried that the rule could 
lead to an unintended consequence where NCUA examiners, rather than 
focusing on the outcomes and effectiveness of a succession plan,

[[Page 104871]]

might use their supervisory authority to impose their own views on how 
succession planning should be managed. The commenters wrote that such a 
scenario could lead to a significant administrative workload, diverting 
attention and resources away from serving members.
    NCUA Response. The Board continues to believe that NCUA rulemaking 
on succession planning is both appropriate and consistent with the 
agency's statutory authority. While the Board agrees that succession 
planning is a responsibility of the FICU's board of directors, it also 
finds that a compelling safety and soundness case exists for rulemaking 
in this area. The failure of FICUs to adequately plan for succession 
poses a risk not only to individual FICUs and their member-owners, but 
to the credit union system as a whole and to the Share Insurance Fund. 
Without adequate planning, key operations could be impacted during 
management transitions or leadership vacuums, such as recordkeeping, 
lending and other member services, liquidity management, cybersecurity, 
compliance with laws and regulations, and other critical 
responsibilities.
    The proposed regulatory changes are designed to mitigate this risk 
and are consistent with the Board's statutory duty to ensure a safe and 
sound system of cooperative credit for its member-owners, as the 
proposed rule explained. Under the FCU Act, the NCUA is the chartering 
and supervisory authority for FCUs and the federal supervisory 
authority for FICUs.\22\ The FCU Act grants the NCUA broad authority to 
issue regulations governing both FCUs and all FICUs. Section 120 of the 
FCU Act is a general grant of regulatory authority and authorizes the 
Board to prescribe rules and regulations for the administration of the 
FCU Act.\23\ Section 207 of the FCU Act is a specific grant of 
authority over share insurance coverage, conservatorships, and 
liquidations.\24\ Section 209 of the FCU Act is a plenary grant of 
regulatory authority to the Board to issue rules and regulations 
necessary or appropriate to carry out its role as share insurer for all 
FICUs.\25\ Moreover, the NCUA has statutory authority to determine 
whether FICUs are operated in an unsafe or unsound manner and terminate 
a FICU's insurance if a FICU is not operated in a safe and sound 
manner.\26\ This final rule will help to identify or prevent unsafe or 
unsound practices. Accordingly, the FCU Act grants the Board broad 
rulemaking authority to ensure that the credit union industry and the 
Share Insurance Fund remain safe and sound and service to members is 
maintained in compliance with applicable laws and regulations.
---------------------------------------------------------------------------

    \22\ 12 U.S.C. 1752-1775.
    \23\ 12 U.S.C. 1766(a).
    \24\ 12 U.S.C. 1787(b)(1).
    \25\ 12 U.S.C. 1789(a)(11).
    \26\ 12 U.S.C. 1786.
---------------------------------------------------------------------------

    In assessing compliance with this rule, the NCUA will focus on 
whether the FICU has developed a succession plan that addresses the 
elements required by the final rule and is consistent with the FICU's 
size and complexity. The Board emphasizes that FICUs, not the NCUA, are 
best positioned to assess various risks and opportunities related to 
succession planning. A FICU will need to make its own determinations as 
to how much detail is necessary to address the required plan elements 
and whether additional factors, besides those required by this final 
rule, should be considered in its succession planning process. The NCUA 
does not intend to micromanage a FICU's succession planning process and 
may issue guidance, as it deems necessary, to clarify a FICU's 
discretion in developing its succession plans and further assist FICU 
succession planning efforts.
    Comment: A ``one-size fits all'' approach is inappropriate. Several 
commenters objected to the broad application of the proposed rule to 
all FICUs, regardless of their size and operational complexity. The 
commenters wrote that individual FICUs have unique challenges and 
governance structures. The commenters wrote that uniform requirements 
might limit the ability of a FICU to design a plan that best aligns 
with its strategic objectives and long-term viability. Some of these 
commenters focused on the potential impacts of uniform requirements on 
smaller FICUs that may not have the resources to meet the detailed 
requirements. The commenters wrote that the diversity among FICUs--
ranging from small, community focused institutions to larger, complex 
organizations--requires flexibility in succession planning that a rigid 
regulatory mandate may not accommodate.
    NCUA Response. The Board agrees a uniform approach to succession 
planning would fail to account for the diversity among FICUs. The final 
rule accommodates such differences. For example, in response to public 
comment, the Board has revised the proposed rule by narrowing the list 
of FICU officials that must be covered by the succession plans, thereby 
enabling FICUs to develop more appropriately tailored plans that better 
reflect their unique circumstances. So long as succession plans address 
the elements required by the final rule, FICUs may adjust their plans 
to reflect operational differences, varying governance structures, and 
other unique circumstances. FICUs may include within the scope of their 
plans ``other personnel the board of directors deems critical given the 
[FICU's] size, complexity, or risk of operations. This includes new 
positions that may be required due to planned changes in operations, 
supervisory landscape, or corporate structure.'' \27\
---------------------------------------------------------------------------

    \27\ Proposed Sec.  701.4(e)(2)(vi), finalized as Sec.  
701.4(e)(2)(iii)
---------------------------------------------------------------------------

    As the preamble to the proposed rule noted, the expectation is for 
a FICU to develop a succession plan that is consistent with its size 
and complexity. Therefore, smaller FICUs are more likely to have a 
simple succession plan that only addresses a few key leadership 
positions. Larger and more sophisticated FICUs are expected to have 
more detailed plans. For example, smaller FICUs may have fewer board 
members, or have fewer staff that would qualify for the positions 
listed in the proposed rule for inclusion in the succession plan. 
Likewise, smaller FICUs are likely to have less expansive employee 
recruitment, development, and retention strategies.

F. Comments Regarding the Inclusion of FISCUs

    Comment: Inclusion of FISCUs is inappropriate. Several commenters 
objected to the inclusion of FISCUs within the scope of the proposed 
regulatory requirements. Some of the commenters wrote that the 
inclusion of FISCUs signals to the states that their regulatory 
agencies are not equipped to ensure that FISCUs are adequately 
positioned for the future. These commenters wrote that the assumption 
is contrary to data that demonstrates state charters have fewer 
failures, more growth, and a history of strong management performance. 
The commenters urged the NCUA to narrow the applicability of the rule 
to exclude FISCUs as was the case in the Board's 2022 proposal.
    NCUA Response. As discussed above, the Board finds that compelling 
safety and soundness reasons exist for undertaking rulemaking on 
succession planning. The failure of FICUs--whether federal or state-
chartered--to adequately plan for succession poses an undue risk to the 
credit union system and to the Share Insurance Fund. The inclusion of 
FISCUs within the scope of the final rule is consistent with the

[[Page 104872]]

Board's statutory authority to ensure a safe and sound system of 
cooperative credit for its member-owners. Under the FCU Act, the NCUA 
is the chartering and supervisory authority for FCUs and the federal 
supervisory authority for FICUs.\28\ The FCU Act also grants the NCUA 
broad authority to issue regulations governing all FICUs.
---------------------------------------------------------------------------

    \28\ 12 U.S.C. 1752-1775.
---------------------------------------------------------------------------

    The Board emphasizes that, contrary to the assertion made by the 
commenters, this final rule does not reflect a statement on the 
efficacy of state efforts to address succession planning. Specifically, 
the final rule provides that for FISCUs in states that have established 
succession planning requirements, the NCUA will defer to such 
requirements to the extent no conflict exists between the final rule 
and the state requirements.\29\
---------------------------------------------------------------------------

    \29\ Sec.  741.228.
---------------------------------------------------------------------------

    Comment: The FISCU carveout is confusing. Several commenters, while 
supportive of the proposed rule's carveout for FISCUs in states where 
succession planning is addressed, found the wording of the provision 
confusing. The preamble of the proposed rule stated that ``to the 
extent that a FISCU is subject to a state statutory or regulatory 
requirement that conflicts with the proposed rule, the NCUA will defer 
to the state requirement.'' \30\ The commenters wrote that this wording 
implies that if a state rule addresses succession planning, FISCUs in 
that state would be exempt from the proposed rule. However, the 
regulatory text of the proposed rule at Sec.  741.228 provides that a 
FISCU must adhere to the succession planning requirements ``to the 
extent these regulatory provisions do not conflict with an applicable 
state requirement.'' According to the commenters, this language implies 
only a partial exemption from specific conflicting provisions. These 
commenters wrote that while a state may not have a specific statutory 
or regulatory requirement addressing succession planning, it may use 
definitions or have issued guidance that differs from that of the NCUA 
proposed rule.
---------------------------------------------------------------------------

    \30\ 89 FR 60329, at 60332.
---------------------------------------------------------------------------

    In addition, one commenter wrote that neither the preamble nor the 
proposed regulatory text uses the word ``exempt'' to describe the 
applicability of the rule to a FISCU in a state that addresses 
succession planning. Instead, the preamble uses defer, and the 
regulatory text is silent. The commenter recommended that, absent a 
total exclusion of FISCUs from the scope of the rule, the Board should 
provide a simplified exemption provision that exempts FISCUs in a state 
upon notice from the state regulator to the NCUA regional director that 
the state supervises succession planning by rule, guidance, or through 
the examination process. The commenter wrote that this approach would 
reduce confusion, ease administration, and presents no greater risk of 
material loss to the Share Insurance Fund.
    NCUA Response. The Board has not revised the rule in response to 
these comments. Contrary to the assertions made by the commenters, 
there is no conflict between the preamble language and the regulatory 
text. Both provide that the NCUA's deferral is contingent on a lack of 
conflict between the rule and the state requirement.\31\ Nowhere does 
the preamble indicate, as the commenter suggests, that the deferral 
provision is intended as a complete exemption for FISCUs from the 
regulatory requirements. Further, as the commenter writes, the deferral 
only applies to legally enforceable state requirements, such as 
statutes, regulations, or other issuances that are binding under state 
law. The deferral does not apply to other issuances in the form of 
guidance, which may be set forth in policy statements, handbooks, 
letters, or similar issuances. While these guidance documents may 
represent supervisory expectations, such as for purposes of determining 
a credit union's CAMELS and risk ratings, FISCUs are not required to 
comply with such guidance because it is by definition non-binding. The 
Board has also not elected to adopt the alternate process suggested by 
the commenter, because it continues to believe that whether deferral 
applies is best addressed on a case-by-case basis during the 
examination process.
---------------------------------------------------------------------------

    \31\ 89 FR 60329, at 60332; proposed Sec.  741.228.
---------------------------------------------------------------------------

    Comment: The NCUA should consolidate the regulation applicable to 
FISCUs. One commenter was concerned regarding the structure of 12 CFR 
part 741, which identifies the regulatory requirements applicable to 
FISCUs by cross-referencing regulatory provisions for FCUs codified 
elsewhere in title 12 of the Code of Federal Regulations. The commenter 
wrote that, while this might seem like a minor detail, it results in 
confusion and inefficiency for many FISCUs as they sift through FCU 
rules to determine what may apply to them. The commenter wrote that 
there is no compelling argument against consolidating FISCU regulations 
in a single location.
    NCUA Response. The suggestion made by the commenter is outside the 
scope of the rulemaking, Accordingly, the rule has not been revised in 
response to the comment. However, the NCUA remains committed to working 
with all FICUs to ensure the clarity of their regulatory obligations.

G. Comments Raising Potential Privacy and Discrimination Concerns

    Comment: Concerns regarding expected retirement and vacancy date 
requirements. The proposed rule would require that a succession plan 
identify the anticipated vacancy date for each of the covered 
positions, ``such as the incumbent's retirement eligibility date or 
announced departure date.'' \32\ Several commenters objected to this 
provision, writing that it was unduly burdensome and could potentially 
raise privacy and age discrimination concerns. The commenters wrote 
that the shift from employee pensions based on years of service to 
defined contribution plans have dramatically altered the concept of 
retirement and made it difficult to estimate when an individual will 
retire. Other commenters wrote that many FICU management officials 
operate under employment agreements that may be renewed or extended. 
Requiring that FICUs publish such dates could lead to charges of age 
discrimination or be used by management to force an employee out who 
has no intention of retiring.
---------------------------------------------------------------------------

    \32\ Proposed Sec.  701.4(e)(3)(i).
---------------------------------------------------------------------------

    NCUA Response. As an initial matter, the Board notes that it is not 
requiring that FICUs make their succession plans public, nor does the 
Board intend to do so. Succession plans will be reviewed by examiners 
and will be treated as confidential supervisory documents, as with 
other supervisory matters.
    The provision is intended solely as a planning aid. In the case of 
elected officials, such date is clearly the expiration of the 
incumbent's term. However, the expected vacancy date for non-elected 
officials can be less clear. The final rule does not require the FICU 
use a specific date, but suggests some possible proxies, including the 
individual's anticipated retirement date or announced departure date. A 
credit union can also note that a retirement or departure date is 
unknown. The decision of what to reflect for the date is at the FICU's 
discretion.
    The Board emphasizes that inclusion of any known or estimated 
retirement or departure date is not intended to create a requirement 
that an individual will retire or otherwise vacate a position on a 
specific date. The Board, therefore, understands that these dates may 
evolve. Nevertheless, the inclusion of a specific or approximate date 
will

[[Page 104873]]

promote conversations within the FICU and allow for better planning in 
advance of a transition, thus accomplishing the purpose of the final 
rule. Further, the FICU should update the dates as necessary to reflect 
changes in an individual's circumstances or plans.
    Comment: Concerns regarding public posting of succession plans. The 
preamble to the proposed rule provided that ``succession plans should 
provide sufficient detail and use language that is reasonably 
understandable to the FICU's member-owners in describing its strategies 
for filling vacancies and for recruiting, developing, and retaining 
employees.'' \33\ The preamble further provided that succession plans 
should be ``clearly and concisely written, use everyday language to the 
extent possible, and avoid ambiguous phrasing open to differing 
interpretations.'' \34\ Several commenters wrote that this language 
implies the succession plans will be publicly available, which raises 
privacy concerns. The commenters wrote that the succession plans may 
include retirement information for senior credit union management, 
which should not be made public. Another commenter wrote that 
succession plans often reflect a FICUs strategy for maintaining 
viability in a competitive market. The public posting of plans would 
enable other financial institutions to access the information for 
competitive advantage or potential merger opportunities.
---------------------------------------------------------------------------

    \33\ 89 FR 60329, at 60333.
    \34\ Id.
---------------------------------------------------------------------------

    NCUA Response. The Board again emphasizes that there is no 
requirement that succession plans be posted or otherwise made available 
to the public. Neither does the final rule supersede existing laws or 
FICU procedures governing the public dissemination of similar 
governance documents. The public availability of the succession plans 
should be treated similarly to such documents. The preamble language 
cited by the commenters was intended solely to emphasize the importance 
of clarity in drafting, especially in those circumstances where the 
plan, or portions thereof, may be made available to member-owners.

H. Comments Regarding Specific Rule Provisions

    Comment: The scope of covered FICU officials should be narrowed. 
Many commenters recommended that the NCUA narrow the scope of the 
positions covered by the succession plans. The commenters wrote that 
the proposed list was overly prescriptive and would impose an undue 
burden to administer. Almost all of these commenters agreed the scope 
should be limited to those officials most directly responsible for 
ensuring the FICU's continuity of operations but differed on the 
specific positions this would include. Some commenters suggested 
inclusion of the members of the board, the members of the supervisory 
and credit committees, and key management officials, including the 
chief executive officer. Other commenters suggested the scope be 
limited to the chief executive officer and chief financial officer (or 
equivalent), because the boards of directors are not involved in the 
FICU's day-to-day operations. Still others suggested that the rule not 
include a specific list at all, but that FICUs should instead be 
provided with the flexibility to determine which critical positions 
should be included in a succession plan based on the specific risks 
associated with unanticipated or extended vacancies.
    Despite their differing recommendations, almost all the commenters 
writing on this topic suggested that loan officers and assistant 
managers be excluded from the list. Several of these commenters wrote 
that larger FICUs may have hundreds of loan officers involved in the 
daily review of loans. The commenters wrote that, given the 
decentralized lending structure of many large FICUs, there is likely 
minimal risk to the ability to serve members if a loan officer vacancy 
occurs. The commenters wrote the risk is even less for assistant 
management officials, who are not crucial to a FICU's continuity of 
operations.
    NCUA Response. In response to these comments, the Board has removed 
loan officers, credit committee members, and supervisory committee 
members from the list of FICU officials that must be covered by the 
succession plans. During development of the July 25, 2024, proposed 
rule, the Board relied on the language of the FCU Act, the model FCU 
bylaws, and the definition of '' senior executive officer'' in 12 CFR 
701.14 as a guide in identifying the list of officials that should be 
covered by the succession plans.\35\ As it did in the preamble to the 
proposed rule, the Board emphasizes that succession plans are intended 
to cover senior leadership positions responsible for the oversight of 
the FICU or its day-to-day management.\36\ Upon consideration of the 
comments and the issues involved, the Board recognizes that loan 
officers and members of credit and supervisory committees may not 
always meet these criteria depending on the size and structure of a 
particular FICU. The change will enable FICUs to develop more 
appropriately tailored succession plans that better reflect their 
unique circumstances.
---------------------------------------------------------------------------

    \35\ Specifically, section 111 of the FCU Act provides that 
``[t]he management of a Federal credit union shall be by a board of 
directors, a supervisory committee, and where the bylaws so provide, 
a credit committee'' (12 U.S.C. 1761). The model FCU bylaws codified 
in Appendix A of 12 CFR part 701 expand the list of senior FCU 
officials to include management officials, assistant management 
officials, and loan officers. The NCUA regulation at 12 CFR 701.14 
defines the term ``senior executive officer'' to include the FICU's 
chief executive officer (typically this individual holds the title 
of president or treasurer/manager), any assistant chief executive 
officer (for example, any assistant president, any vice president, 
or any assistant treasurer/manager) and the chief financial officer 
(controller).
    \36\ 89 FR 60329, at 60333.
---------------------------------------------------------------------------

    As noted in a preceding response, FICUs may include within the 
scope of their plans ``other personnel the board of directors deems 
critical given the [FICU's] size, complexity, or risk of operations.'' 
\37\ FICUs should use the flexibility provided by this provision to 
assess whether the inclusion of loan officers and members of the 
supervisory and credit committees is appropriate given the 
institution's characteristics. For example, a smaller FICU with few 
loan officers may deem the position critical given the impact a 
departure would have on the institution's operations. In contrast, a 
larger FICU that employs many loan officers may determine its 
operations would not be impacted by the loss of any specific individual 
and choose to not include this position in their plan.
---------------------------------------------------------------------------

    \37\ Proposed Sec.  701.4(e)(2)(vi), finalized as Sec.  
701.4(e)(2)(iii).
---------------------------------------------------------------------------

    Comment: The annual plan review requirement is excessive. Several 
commenters objected to the requirement that a FICU board review the 
succession plan ``no less than annually.'' \38\ The commenters wrote 
that this requirement is burdensome and excessive. The commenters wrote 
that succession plans are not a dynamic and ever-evolving document and, 
therefore, should only be reviewed as needed. One of the commenters 
recommended that FICUs be provided the flexibility to review the plans 
once every 24 months. Another commenter suggested a review period of 
every three years.
---------------------------------------------------------------------------

    \38\ Proposed Sec.  701.4(e)(4)(ii).
---------------------------------------------------------------------------

    NCUA Response. Upon reconsideration, the Board agrees that the 
annual review of plans is unnecessary. The final rule now requires 
FICUs to review and update the plan as necessary but at least once 
every 24 months. The Board believes this change provides FICUs with 
additional flexibility while still accomplishing the

[[Page 104874]]

goal of the rulemaking of ensuring that succession plans are regularly 
reviewed and kept current.
    Comment: Education requirements for FICU board members. Several 
commenters objected to the proposed regulatory language requiring that 
directors have a ``working familiarity'' with the FICU's succession 
plan no later than six months after appointment.\39\ The commenters 
wrote that the focus of newly appointed directors should be on gaining 
familiarity with items such as the FICU's operations, the products and 
services being offered, and applicable legal authorities. In contrast, 
a minority of commenters supported the requirement, writing that it is 
appropriate for boards to maintain a working knowledge of the latest 
developments in all of the areas of risk confronted by the FICU.
---------------------------------------------------------------------------

    \39\ Proposed Sec.  701.4(b)(3)(ii).
---------------------------------------------------------------------------

    NCUA Response. The Board has not revised the rule in response to 
these comments. The Board continues to believe that succession planning 
is one of the most vital responsibilities of a FICU's board of 
directors. Succession planning is a critical component of a FICU's 
overall strategic plan. It helps ensure that the appropriate personnel 
are available to execute the FICU's strategic plan and mission. A 
board's failure to plan for vacancies in elected and appointed 
positions, as well as the transition of its management, could come with 
high costs. The FICU runs the risk of creating a leadership vacuum, 
disrupting operations, and potentially jeopardizing the FICU's ability 
to adequately manage liquidity risk, address cybersecurity threats, or 
ensure continued compliance with consumer protection, Bank Secrecy Act, 
and other critical responsibilities. Accordingly, and as recognized by 
the commenters writing in support of the requirement, succession 
planning merits inclusion among the items new board members must become 
familiar with.
    Comment: The ``working familiarity'' requirement is vague. Several 
commenters were concerned about a perceived lack of clarity with the 
proposed ``working familiarity'' language. The commenters wrote that, 
unlike the Board's 2022 proposal, the proposed rule did not include 
language stating that training is not mandated to meet this 
requirement. The commenters wrote that it is unclear what steps a board 
of directors would be expected to take to achieve a ``working 
familiarity.'' The commenters were concerned this perceived ambiguity 
would leave the door open for differing practices among FICUs regarding 
training, as well as for different interpretations of the requirement 
between FICUs and examiners. They wrote that this could lead to 
inconsistencies in the examination process and urged the NCUA to 
clarify the meaning of the provision.
    NCUA Response. The Board has not revised the rule in response to 
these comments. The Board notes that the ``working familiarity'' 
language is not new but comes from existing Sec.  701.4(b)(3). This 
existing regulation requires new credit union board members to gain a 
``working familiarity with basic finance and accounting practices'' 
within six months of election or appointment. The final rule does not 
revise this language but adds succession planning to the list of items 
that directors must have a working familiarity with no later than six 
months after appointment. The final rule does not mandate the contents 
of training to meet this requirement. A FICU may incorporate succession 
planning into whatever materials it currently uses to comply with the 
education requirement.
    Comment: Deviations from succession plan. Several commenters wrote 
about potential deviations from the succession plan due to unforeseen 
circumstances. The commenters wrote that requiring documentation of 
such changes is overly prescriptive and sometimes not feasible given 
rapidly changing circumstances. Another commenter asked for additional 
clarity on the steps a FICU should take if it is unable to adhere to 
its succession plan, writing that the proposed rule lacked sufficient 
detail.
    NCUA Response. As provided in the preamble to the proposed rule, 
the Board recognizes that circumstances might necessitate deviations 
from the succession plan in filling specific vacancies. The final rule 
accommodates such exigencies. In the event exigent circumstances 
require a substantial deviation from the board approved plan, 
management and/or the FICU board has the flexibility to do what it 
deems necessary at the time, consistent with their fiduciary duties and 
legal responsibilities. To further emphasize this flexibility, the 
final rule no longer requires that such deviations be documented in the 
board's meeting minutes. However, a substantial deviation from the 
approved plan should be reported to the board as soon as practicable. 
Credit unions, not the NCUA, are best positioned to assess various 
risks and exigent circumstances. The agency does not intend to 
micromanage deviations from succession plans made in response to 
exigent circumstances. Further, FICU boards have flexibility in 
determining how to calculate the required 24-month review period. A 
FICU may determine that the review of a succession plan necessitated by 
a change to address an exigent circumstance satisfies the required 
review, therefore restarting the 24-month review cycle.

I. Other Comments

    Comment: Exemption for high performing FICUs. One commenter 
suggested that the Board include an exemption for FICUs of all asset 
sizes with a CAMELS composite rating of 1 or 2. The commenter wrote 
that bond requirements for FICUs vary by CAMELS rating, with a greater 
bond being required for CAMELS 3, 4, and 5 rated FICUs due to the 
increased risk to the Share Insurance Fund. The commenter wrote that 
this logic should extend to succession planning as well. The commenter 
wrote that, at minimum, the final rule should establish such an 
exemption for FISCUs with a CAMELS composite rating of 1 or 2 because 
the NCUA is not the primary federal regulator for FISCUs. The commenter 
wrote that, given the lower risk to the Share Insurance Fund, the NCUA 
does not have as much standing to issue regulations covering FISCUs 
``when it is not necessary, but only a best practice.''
    NCUA Response. The suggestion made by the commenter is outside the 
scope of the proposed rule. The Board did not propose or seek public 
comment on a class-based exemption of this type. Accordingly, the Board 
has not revised the rule in response to this comment. As discussed, the 
Board believes that having clearly articulated, consistent, and 
enforceable succession planning requirements will benefit all FICUs, 
irrespective of asset size and CAMELS rating. Moreover, the 
establishment of a succession plan in advance of a FICU potentially 
becoming a composite CAMELS code 3, 4, or 5 will allow the FICU's 
leadership to remain focused on the most pressing problems that led to 
the downgrade.
    Comment: Additional resources are necessary to aid compliance. 
Several commenters wrote that FICUs would require additional resources 
to comply with the succession plan requirements. While the majority of 
these commenters focused on the challenges faced by smaller FICUs, 
others wrote that all FICUs, irrespective of size, would require 
assistance. The commenters suggested the NCUA develop a broad range of 
resources to assist all FICUs in developing succession planning. One 
commenter recommended that the NCUA work with state supervisory 
authorities to develop recruitment

[[Page 104875]]

strategies and resources to assist FICUs in developing and implementing 
their succession plans.
    NCUA Response. As discussed, the NCUA makes available several 
resources to aid FICU succession planning efforts, including online 
training. The Board has also developed a sample template for a 
succession plan that may be appropriate for some FICUs. Smaller FICUs 
with less than $100 million in total assets and minority depository 
institutions of all sizes may also be eligible for assistance in a 
variety of areas, including succession planning, through the agency's 
Small Credit Union and Minority Depository Institution Support Program. 
FICUs with a low-income designation may be able to apply for technical 
assistance grants to support succession planning or offset training 
costs through the Community Development Revolving Loan Fund.
    Comment: Additional clarity required regarding examination 
expectations. Several commenters wrote that the proposed rule was 
unclear about the potential impact on a FICU if an examiner determines 
a succession plan to be inadequate. The commenters urged the NCUA to 
clarify the expectations of the examination program to ensure 
consistency in evaluations of FICU regulatory compliance. The 
commenters also suggested that the final rule should identify a 
reasonable timeline for remediation should a FICU's succession plan be 
deemed inadequate.
    NCUA Response. The expectation is for a FICU to develop a 
succession plan that meets the regulatory requirements and is 
consistent with the FICU's size and complexity. Potential examination 
actions due to inadequate succession plans and possible remediation 
timelines are outside the scope of this rulemaking. As is current 
practice, examiners will use discretion and judgment when working with 
FICUs to remedy a potential negative finding before issuing documents 
of resolution or other negative findings. The NCUA may, in its 
discretion, issue guidance on the topic of succession planning as it 
deems necessary.

III. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act \40\ generally requires an agency to 
conduct a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements, unless the agency certifies that 
the rule will not have a significant economic impact on a substantial 
number of small entities. If the agency makes such a certification, it 
shall publish the certification at the time of publication of either 
the proposed rule or the final rule, along with a statement providing 
the factual basis for such certification.\41\ For purposes of this 
analysis, the NCUA considers small credit unions to be those having 
under $100 million in assets.\42\ The Board fully considered the 
potential economic impacts of the regulatory amendments on small credit 
unions.
---------------------------------------------------------------------------

    \40\ 5 U.S.C. 601 et seq.
    \41\ 5 U.S.C. 605(b).
    \42\ 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

    The final rule requires that a FICU board of directors establish, 
and comply with, a written succession plan that addresses certain 
specified positions and contains specified elements. In addition, the 
board of directors will be required to review the succession plan no 
less than every 24 months. These requirements may impose some cost on 
FICUs. However, the NCUA believes several factors mitigate the 
potential costs, especially for small FICUs with assets of less than 
$100 million.
    First, a FICU is expected to develop a succession plan that is 
consistent with its size and complexity. Therefore, small FICUs may 
have a simple succession plan that is less costly to prepare than would 
be the case for larger and more complex FICUs. Further, in recognition 
that smaller FICUs may lack the resources or expertise to develop 
succession plans, the Board is providing a sample template for a simple 
succession plan that may be appropriate for these FICUs. The Board is 
also aware that many FICUs, including small FICUs, have already adopted 
succession plans. Many of these existing plans should already address, 
either partially or in their entirety, the elements that would be 
required by the proposed rule. This could minimize the burden of 
complying with the new requirements.
    In response to comments, the Board has narrowed the list of FICU 
officials that must be covered by the succession plans. This should 
further minimize burden by enabling FICUs to develop more tailored 
succession plans that reflect their unique circumstances. Further, the 
Board is delaying the effective date of the final rule until January 1, 
2026, which will provide additional time to make any operational 
changes or resource allocations necessary for development of the 
succession plans.
    The NCUA also offers training and other resources to aid credit 
unions in developing their succession plans. For example, the NCUA has 
posted a video series on succession planning on the internet. The 
NCUA's Small Credit Union and Minority Depository Institution Support 
Program is an available succession planning resource for FICUs with 
less than $100 million in total assets and minority depository 
institutions of any size. Smaller FICUs are also encouraged to seek 
assistance from larger or more sophisticated FICUs in the development 
of the required succession plans.\43\ FICUs may also use already 
existing information in preparing their plans, such as the data used to 
develop the recommended program to prepare for a catastrophic act. 
These resources should further reduce the costs of preparing the 
succession plans.
---------------------------------------------------------------------------

    \43\ Supra, note 15.
---------------------------------------------------------------------------

    Accordingly, the NCUA certifies the final rule will not have a 
significant economic impact on a substantial number of small credit 
unions.

B. Small Business Regulatory Enforcement Fairness Act/Congressional 
Review Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA) \44\ generally provides for congressional review of agency 
rules. A reporting requirement is triggered in instances where the NCUA 
issues a final rule as defined by section 551 of the Administrative 
Procedure Act.\45\ An agency rule, in addition to being subject to 
congressional oversight, may also be subject to a delayed effective 
date if the rule is a ``major rule.'' The NCUA does not believe this 
rule is a ``major rule'' within the meaning of the relevant sections of 
SBREFA.
---------------------------------------------------------------------------

    \44\ Public Law 104-121, 110 Stat. 147 (1996).
    \45\ 5 U.S.C. 551.
---------------------------------------------------------------------------

    As required by SBREFA, the NCUA has submitted this final rule to 
OMB for it to determine if the final rule is a ``major rule'' for 
purposes of SBREFA. The NCUA also will file appropriate reports with 
Congress and the GAO so this rule may be reviewed.

C. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemaking in 
which an agency creates a new or amends existing information collection 
requirements.\46\ For purposes of the PRA, an information collection 
requirement may take the form of a reporting, recordkeeping, or a 
third-party disclosure requirement. The NCUA may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection

[[Page 104876]]

unless it displays a valid OMB control number.
---------------------------------------------------------------------------

    \46\ 44 U.S.C. 3501-3520; 5 CFR part 1320.
---------------------------------------------------------------------------

    The final rule establishes new information collections in the form 
of succession policies and plans. The NCUA estimates a total annual 
burden of 46,750 hours as follows:

Estimated PRA Burden

     OMB Control Number: 3133-NEW.
     Title of Information Collection: Succession Planning.
     Estimated number of respondents: 4,499.
     Estimated number of responses per respondent: 1.
     Estimated total annual responses: 4,499.
     Estimated total annual burden hours per response: 10.
     Estimated total annual burden hours: 44,990.
    The NCUA addressed comments on the proposed PRA burden estimate 
under section II. Discussion of Public Comments. In accordance with the 
PRA, the information collection requirements included in this final 
rule have been submitted to OMB for approval under control number 3133-
NEW.

D. Executive Order 13132 on Federalism

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order to adhere to fundamental 
federalism principles. This final rule applies to FCUs and to FISCUs. 
By law, FISCUs are already subject to numerous provisions of NCUA's 
rules, based on the agency's role as the insurer of member share 
accounts and the significant interest NCUA has in the safety and 
soundness of their operations. The rulemaking may, therefore, have an 
occasional direct effect on the states, the relationship between the 
national government and the states, or on the distribution of power and 
responsibilities among the various levels of government.

E. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this final rule will not affect family 
well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, 1999.\47\ The regulatory 
requirements are exclusively concerned with succession planning 
policies of FICUs for replacing vacancies among board members and other 
key management officials. While the final rule is intended to maintain 
access to quality credit union services by reducing unplanned or forced 
consolidations, the potential positive effect on family well-being, 
including financial well-being is, at most, indirect.
---------------------------------------------------------------------------

    \47\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 741

    Bank deposit insurance, Credit, Credit unions, Reporting and 
recordkeeping requirements.

    By the National Credit Union Administration Board, this 17th day 
of December 2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons stated in the preamble, the NCUA Board amends 12 
CFR parts 701 and 741, as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNION

0
1. The authority citation for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789. 
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

0
2. Amend Sec.  701.4 by:
0
a. Revising paragraph (b)(3).
0
b. Adding paragraph (e).
    The addition and revision to read as follows:

Sec.  701.4  General authorities and duties of Federal credit union 
directors.

* * * * *
    (b) * * *
    (3) At the time of election or appointment, or within a reasonable 
time thereafter, not to exceed six months, have at least a working 
familiarity with, and to ask, as appropriate, substantive questions of 
management and the internal and external auditors of:
    (i) Basic finance and accounting practices, including the ability 
to read and understand the Federal credit union's balance sheet and 
income statement; and
    (ii) The Federal credit union's succession plan established 
pursuant to paragraph (e) of this section.
* * * * *
    (e) Succession planning requirements. (1) General. A federal credit 
union must establish a written succession plan as provided in this 
paragraph that is approved by the board of directors and consistent 
with the credit union's size and complexity. In evaluating whether a 
succession plan meets the requirements of this paragraph, the NCUA will 
consider the size of the federal credit union, as well as the 
complexity and risk of its operations.
    (2) Covered positions. The succession plan shall, at a minimum, 
cover the following positions, or their equivalent if the federal 
credit union has adopted different position titles:
    (i) Members of the board of directors;
    (ii) Management officials and assistant management officials, as 
those terms are defined in Appendix A, if provided for in the federal 
credit union's bylaws, and, to the extent not already covered, the 
senior executive officers identified in Sec.  701.14(b)(2); and
    (iii) Any other personnel the board of directors deems critical 
given the federal credit union's size, complexity, or risk of 
operations. This includes new positions that may be required due to 
planned changes in operations, supervisory landscape, or corporate 
structure.
    (3) Contents of succession plan. The succession plan must, at 
minimum, contain the following information regarding each of the 
positions covered under paragraph (e)(2) of this section:
    (i) The title for each covered position and the expiration of the 
incumbent's term (if serving in a term-limited capacity) or other 
anticipated vacancy date if known (such as the incumbent's retirement 
eligibility date or announced departure date).
    (ii) The federal credit union's plan for permanently filling 
vacancies for each of the positions.
    (iii) The federal credit union's strategy for recruiting candidates 
with the potential to assume each of the positions.The strategy must 
consider how the selection and diversity of skills among the employees 
covered by the succession plan collectively and individually promotes 
the safe and sound operation of the federal credit union.
    (4) Board responsibilities. The board of directors must:
    (i) Approve a written succession plan that meets the requirements 
of paragraphs (e)(2) and (e)(3) of this section; and
    (ii) Review, and update as necessary, the succession plan in 
accordance with a schedule established by the board of directors but no 
less than every 24 months.

[[Page 104877]]

PART 741--REQUIREMENTS FOR INSURANCE

0
3. The authority citation for part 741 continues to read as follows:

    Authority:  12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.

0
4. Add Sec.  741.228 to read as follows:

Sec.  741.228  Succession planning.

    Any credit union that is insured pursuant to Title II of the Act 
must adhere to the requirements in Sec.  701.4(b)(3) and (e) of this 
chapter, to the extent these regulatory provisions do not conflict with 
an applicable state requirement.

[FR Doc. 2024-30449 Filed 12-23-24; 8:45 am]
BILLING CODE 7535-01-P
```