This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

30975 

Vol. 74, No. 123 

Monday, June 29, 2009 

1See Division A, titled the ‘‘Federal Housing 

Finance Regulatory Reform Act of 2008,’’ Title I, 

Section 1101 of HERA. 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Part 1231 

RIN 2590–AA08 

Golden Parachute and Indemnification 

Payments 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Proposed rule. 

SUMMARY: The Federal Housing Finance 

Agency (FHFA) is proposing an 

amendment to the final Golden 

Parachute Payments regulation that was 

published in the Federal Register on 

January 29, 2009. This proposed 

amendment addresses prohibited and 

permissible golden parachute payments 

to entity-affiliated parties in connection 

with the Federal National Mortgage 

Association, the Federal Home Loan 

Mortgage Corporation, and the Federal 

Home Loan Banks (regulated entities) as 

well as the Office of Finance. It also sets 

forth prohibited and permissible 

indemnification payments that 

regulated entities and the Office of 

Finance may make to an entity-affiliated 

party in connection with administrative 

proceedings or civil actions instituted 

by FHFA. 

DATES: Written comments on the 

proposed amendment must be received 

on or before July 29, 2009. For 

additional information, see 

SUPPLEMENTARY INFORMATION. 

ADDRESSES: You may submit your 

comments on the proposed amendment, 

identified by regulatory information 

number ‘‘RIN 2590–AA08,’’ by any of 

the following methods: 

• U.S. Mail, United Parcel Service, 

Federal Express, or Other Mail Service: 

The mailing address for comments is: 

Alfred M. Pollard, General Counsel, 

Attention: Comments/RIN 2590–AA08, 

Federal Housing Finance Agency, 

Fourth Floor, 1700 G Street, NW., 

Washington, DC 20552. 

• Hand Delivered/Courier: The hand 

delivery address is: Alfred M. Pollard, 

General Counsel, Attention: Comments/ 

RIN 2590–AA08, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

package should be logged at the Guard 

Desk, First Floor, on business days 

between 9 a.m. and 5 p.m. 

• E-mail: Comments to Alfred M. 

Pollard, General Counsel, may be sent 

by e-mail at RegComments@fhfa.gov. 

Please include ‘‘RIN 2590–AA08’’ in the 

subject line of the message. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. If 

you submit your comment to the 

Federal eRulemaking Portal, please also 

send it by e-mail to FHFA at 

RegComments@fhfa.gov to ensure 

timely receipt by the agency. Please 

include ‘‘RIN 2590–AA08’’ in the 

subject line of the message. 

FOR FURTHER INFORMATION CONTACT: 

Alfred M. Pollard, General Counsel, 

(202) 414–3788 (not a toll free number). 

The telephone number for the 

Telecommunications Device for the Deaf 

is (800) 877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Comments 

FHFA invites comments on all aspects 

of the proposed amendment and will 

take all comments into consideration 

before issuing the final regulation. 

FHFA previously requested comments 

on a proposed amendment, addressing 

indemnification payments, to the 

Golden Parachute Payments regulation 

that was published on November 14, 

2008 (73 FR 67424). Comments received 

in response to the November 14, 2008 

publication will be considered along 

with comments received in response to 

this amendment. 

Copies of all comments will be posted 

without change, including any personal 

information you provide, such as your 

name and address, on the FHFA Internet 

Web site at http://www.fhfa.gov. In 

addition, copies of all comments 

received will be available for 

examination by the public on business 

days between the hours of 10 a.m. and 

3 p.m., at the Federal Housing Finance 

Agency, Fourth Floor, 1700 G Street, 

NW., Washington, DC 20552. To make 

an appointment to inspect comments, 

please call the Office of General Counsel 

at (202) 414–3751. 

II. Background 

A. General Background 

The Housing and Economic Recovery 

Act of 2008 (HERA), Public Law 110– 

289, 122 Stat. 2654, amended the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 (12 

U.S.C. 4501 et seq.) (Safety and 

Soundness Act) to establish FHFA as an 

independent agency of the Federal 

Government.1 FHFA was established to 

oversee the prudential operations of the 

Federal National Mortgage Association, 

the Federal Home Loan Mortgage 

Corporation (collectively, Enterprises), 

and the Federal Home Loan Banks 

(FHLBanks) (collectively, regulated 

entities) and to ensure that they operate 

in a safe and sound manner including 

being capitalized adequately; foster 

liquid, efficient, competitive and 

resilient national housing finance 

markets; comply with the Safety and 

Soundness Act and rules, regulation, 

guidelines, and orders issued under the 

Safety and Soundness Act, and their 

respective authorizing statutes; and 

carry out their missions through 

activities authorized and consistent 

with the Safety and Soundness Act and 

their authorizing statutes; and, that the 

activities and operations of the 

regulated entities are consistent with the 

public interest. FHFA also has 

regulatory authority over the Office of 

Finance of the Federal Home Loan Bank 

System. 

The Office of Federal Housing 

Enterprise Oversight (OFHEO) and the 

Federal Housing Finance Board (FHFB) 

will be abolished one year after 

enactment of HERA. However, the 

regulated entities continue to operate 

under regulations promulgated by 

OFHEO and FHFB until such 

regulations are superseded by 

regulations promulgated by FHFA. 

B. Rulemaking Background 

Section 1114 of HERA amended 

section 1318(e) of the Safety and 

Soundness Act (12 U.S.C. 4518(e)) to 

provide explicit authorities to FHFA in 

addressing golden parachute payments 

and indemnification payments. FHFA 

published the interim final regulation 

on Golden Parachute and 

Indemnification Payments in the 


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2 12 CFR 985.4 and 985.7. 

3 12 U.S.C.4631(a) and 4636a(a). 

4The FDIC regulation is found at 12 CFR part 359. 

5 12 U.S.C. 4502(11). 6 12 CFR part 359. 

Federal Register on September 16, 2008 

(73 FR 53356). Subsequently, it 

published corrections rescinding that 

portion of the regulation that addressed 

indemnification payments on 

September 19, 2008 (73 FR 54309) and 

on September 23, 2008 (73 FR 54673). 

On November 14, 2008 (73 FR 67424), 

FHFA published a proposed 

amendment to the interim final 

regulation in the Federal Register, 

which addressed indemnification 

payments. The public notice and 

comment period closed on December 

29, 2008. On January 29, 2009 (74 FR 

5101), FHFA published the final 

regulation on Golden Parachute 

Payments. 

FHFA is proposing an amendment to 

the final Golden Parachute Payments 

regulation that would address in more 

detail prohibited and permissible 

golden parachute payments. FHFA 

believes it is useful to provide an 

opportunity to the public to read and 

comment on both the proposed golden 

parachute payments and 

indemnification payments amendments 

in context. Therefore, this proposed 

amendment also contains a re-proposal 

of the indemnification payments 

amendment that was first proposed on 

November 14, 2008. 

III. Office of Finance 

Section 1114 of HERA amended 

section 1318(e) of the Safety and 

Soundness Act (12 U.S.C. 4518(e)) by 

providing FHFA with additional 

authorities in addressing golden 

parachute and indemnification 

payments made by the regulated 

entities. The Office of Finance is a joint 

office of the FHLBanks that was 

established by a predecessor to FHFA. 

The Office of Finance is governed by a 

three-person board of directors 

consisting of two FHLBank presidents 

and one independent member. Under 

the regulations of FHFB, the Office of 

Finance is subject to the same regulatory 

oversight authority and enforcement 

powers as are the FHLBanks and their 

respective directors, officers, and 

employees.2 The Office of Finance also 

is subject to the cease-and-desist 

authority of FHFA, and its directors, 

officers and management are subject to 

the removal and prohibition authority of 

FHFA.3 Although the Office of Finance 

is not directly covered by section 

1318(e), it is subject to the Director’s 

‘‘general regulatory authority’’ under 

section 1311(b)(2) of the Safety and 

Soundness Act (12 U.S.C. 4511(b)(2)), as 

amended by HERA. The Director is 

required to exercise that authority as 

necessary to ensure that the purposes of 

the Safety and Soundness Act, the 

authorizing statutes, and other 

applicable law are carried out. 

Because of the unique nature of the 

Office of Finance and the 

interrelationship between it and the 

FHLBanks, FHFA believes that the 

purposes underlying the limitations on 

golden parachute and indemnification 

payments can best be carried out if the 

limitations are consistent between the 

FHLBanks and the Office of Finance, 

their joint office. Therefore, based on its 

general regulatory authority over the 

Office of Finance, FHFA is proposing 

that the amendment would apply to the 

Office of Finance. 

IV. Golden Parachute Payments 

FHFA published a final regulation, 

Golden Parachute Payments in the 

Federal Register on January 29, 2009 

(74 FR 5101). The final Golden 

Parachute Payments regulation 

addressed public comment on factors 

the Director would consider in acting on 

golden parachute payments. As stated in 

the preamble of the final regulation, 

comments received that addressed other 

elements of a golden parachute 

regulation would be considered by 

FHFA in subsequent rulemaking for 

public comment. Specifically, in 

response to comments received, it was 

stated that FHFA would consider 

adding provisions similar to those of the 

Federal Deposit Insurance Corporation 

(FDIC) golden parachute regulation in 

the subsequent rulemaking. The FDIC 

regulation describes more specifically 

benefits included or excluded from the 

term ‘‘golden parachute payment.’’ 

Thus, the provisions of the proposed 

amendment addressing golden 

parachute payments are substantially 

similar to the FDIC regulation that limits 

golden parachute payments by insured 

depository institutions to institutionaffiliated parties.4

The proposed amendment would 

describe prohibited and permissible 

golden parachute payments that a 

regulated entity or the Office of Finance 

may make to an entity-affiliated party. 

The term ‘‘entity-affiliated party’’ is 

statutorily defined under the Safety and 

Soundness Act to include any ‘‘officer’’ 

of the regulated entity.5 The term 

‘‘officer’’ for purposes of the Director’s 

oversight of golden parachute payments 

has broader coverage than the term 

‘‘executive officer’’ as defined in section 

4502(12) of the Safety and Soundness 

Act (12 U.S.C. 4502(12)) with respect to 

the Director’s authority to prohibit and 

withhold executive compensation under 

section 1318(a) of the Safety and 

Soundness Act (12 U.S.C. 4518(a)). 

In proposing the amendment, FHFA 

recognizes that prior to the enactment of 

HERA, the regulated entities or the 

Office of Finance may have entered into 

agreements that provide for golden 

parachute payments beyond that which 

is proposed to be permissible under 

section 1318(e) of the Safety and 

Soundness Act (12 U.S.C. 4518(e)) and 

the proposed amendment. FHFA 

intends that the proposed amendment 

would apply to agreements entered into 

by a regulated entity or the Office of 

Finance with an entity-affiliated party 

on or after the date the regulation is 

effective. 

V. Indemnification Payments 

The proposed amendment would 

describe prohibited and permissible 

indemnification payments that a 

regulated entity and the Office of 

Finance may make to an entity-affiliated 

party in connection with administrative 

proceedings or civil actions instituted 

by FHFA. The provisions of the 

proposed amendment addressing 

indemnification payments are 

substantially similar to the FDIC 

regulation that limits indemnification 

by insured depository institutions to 

institution-affiliated parties.6

The proposed amendment is 

substantially similar to the proposed 

amendment addressing indemnification 

payments published in the Federal 

Register on November 14, 2008 (73 FR 

67424). FHFA received seven comment 

letters and will consider those comment 

letters with comments received in 

response to this proposed rulemaking. 

In proposing the amendment, FHFA 

recognizes that prior to the enactment of 

HERA, the regulated entities or the 

Office of Finance may have entered into 

indemnification agreements that 

provide for indemnification beyond that 

which is proposed to be permissible 

under section 1318(e) of the Safety and 

Soundness Act (12 U.S.C. 4518(e)) and 

the proposed amendment. FHFA 

intends that the proposed amendment 

would apply to agreements entered into 

by a regulated entity or the Office of 

Finance with an entity-affiliated party 

on or after the date the regulation is 

effective. 

FHFA is also of the view that the 

enactment of section 1114 of HERA 

makes clear that Congress has 

authorized FHFA to limit or prohibit a 

regulated entity or the Office of Finance 

from indemnifying an entity-affiliated 


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party for any civil money penalty, 

notwithstanding the language of 12 

U.S.C. 4636(g). Nevertheless, FHFA is of 

the view that it would be in the best 

interests of the regulated entities to 

permit indemnification of first and 

second tier civil money penalties where 

the administrative proceeding or civil 

action relates to conduct occurring 

while the regulated entity was in 

conservatorship. 

VI. Differences Between FHLBanks and 

Enterprises 

Section 1313(f) of the Safety and 

Soundness Act (12 U.S.C. 4513(f)), as 

amended by section 1201 of HERA, 

requires the Director, when 

promulgating regulations relating to the 

FHLBanks, to consider the differences 

between the FHLBanks and the 

Enterprises with respect to the 

FHLBanks’ cooperative ownership 

structure; mission of providing liquidity 

to members; affordable housing and 

community development mission; 

capital structure; and joint and several 

liability. The Director may also consider 

any other differences that are deemed 

appropriate. In preparing the proposed 

amendment, the Director considered the 

differences between the FHLBanks and 

the Enterprises as they relate to the 

above factors. The Director requests 

comments from the public about 

whether differences related to these 

factors should result in a revision of the 

proposed amendment as it relates to the 

FHLBanks. 

Regulatory Impact 

Paperwork Reduction Act 

The proposed amendment does not 

contain any information collection 

requirement that requires the approval 

of the Office of Management and Budget 

under the Paperwork Reduction Act (44 

U.S.C. 3501 et seq.). 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) requires that a 

regulation that has a significant 

economic impact on a substantial 

number of small entities, small 

businesses, or small organizations must 

include an initial regulatory flexibility 

analysis describing the regulation’s 

impact on small entities. Such an 

analysis need not be undertaken if the 

agency has certified that the regulation 

will not have a significant economic 

impact on a substantial number of small 

entities. 5 U.S.C. 605(b). FHFA has 

considered the impact of the proposed 

amendment under the Regulatory 

Flexibility Act. FHFA certifies that the 

proposed amendment is not likely to 

have a significant economic impact on 

a substantial number of small business 

entities because the proposed 

amendment is applicable only to the 

regulated entities which are not small 

entities for the purposes of the 

Regulatory Flexibility Act. 

List of Subjects in 12 CFR Part 1231 

Golden parachutes, Governmentsponsored enterprises, Indemnification. 

Accordingly, for reasons stated in the 

preamble, under the authority of 12 

U.S.C. 4518(e) and 4526, FHFA 

proposes to amend part 1231 of 

subchapter B of title 12 CFR Chapter XII 

as follows: 

Subchapter B—Entity Regulations 

PART 1231—GOLDEN PARACHUTE 

AND INDEMNIFICATION PAYMENTS 

1. The authority citation for part 1231 

is revised to read as follows: 

Authority: 12 U.S.C. 4518(e); 12 U.S.C. 

4526. 

2. The heading to part 1231 is revised 

to read as set forth above. 

3. Section 1231.1 is revised to read as 

follows: 

§ 1231.1 Purpose. 

The purpose of this part is to 

implement section 1318(e) of the Safety 

and Soundness Act (12 U.S.C. 4518(e)) 

by setting forth the standards that the 

Director will take into consideration in 

determining whether to limit or prohibit 

golden parachute payments and by 

setting forth prohibited and permissible 

indemnification payments that 

regulated entities and the Office of 

Finance may make to entity-affiliated 

parties. 

4. Section 1231.2 is amended by: 

a. Removing the paragraph 

designations before each definition and 

arranging definitions in alphabetical 

order. 

b. Removing the reserved paragraphs 

(l) through (n). 

c. Removing the definition for the 

term ‘‘Act.’’ 

d. Adding definitions for the terms 

‘‘Benefit plan,’’ ‘‘Bona fide deferred 

compensation plan or arrangement,’’ 

‘‘Liability or legal expense,’’ 

‘‘Nondiscriminatory,’’ ‘‘Payment,’’ 

‘‘Prohibited indemnification payment,’’ 

and ‘‘Safety and Soundness Act’’ in 

alphabetical order. 

e. Revising the definition for the terms 

‘‘Entity-affiliated party,’’ ‘‘Golden 

parachute payment,’’ and ‘‘Troubled 

condition.’’ 

The additions and revisions read as 

follows: 

§ 1231.2 Definitions. 

* * * * * 

Benefit plan means any plan, contract, 

agreement, or other arrangement which 

is an ‘‘employee welfare benefit plan’’ as 

that term is defined in section 3(1) of 

the Employee Retirement Income 

Security Act of 1974, as amended (29 

U.S.C. 1002(1)), or other usual and 

customary plans such as dependent 

care, tuition reimbursement, group legal 

services or cafeteria plans; provided 

however, that such term shall not 

include any plan intended to be subject 

to paragraphs (2)(iii) and (v) of the term 

golden parachute payment as defined in 

this section. 

Bona fide deferred compensation plan 

or arrangement means any plan, 

contract, agreement or other 

arrangement whereby: 

(1) An entity-affiliated party 

voluntarily elects to defer all or a 

portion of the reasonable compensation, 

wages or fees paid for services rendered 

which otherwise would have been paid 

to such party at the time the services 

were rendered (including a plan that 

provides for the crediting of a 

reasonable investment return on such 

elective deferrals) and the regulated 

entity or the Office of Finance either: 

(i) Recognizes compensation expense 

and accrues a liability for the benefit 

payments according to generally 

accepted accounting principles (GAAP); 

or 

(ii) Segregates or otherwise sets aside 

assets in a trust which may only be used 

to pay plan and other benefits, except 

that the assets of such trust may be 

available to satisfy claims of creditors of 

the regulated entities or the Office of 

Finance in the case of insolvency; or 

(2) A regulated entity or the Office of 

Finance establishes a nonqualified 

deferred compensation or supplemental 

retirement plan, other than an elective 

deferral plan described in paragraph (1) 

of this definition: 

(i) Primarily for the purpose of 

providing benefits for certain entityaffiliated parties in excess of the 

limitations on contributions and 

benefits imposed by sections 401(a)(17), 

402(g), 415, or any other applicable 

provision of the Internal Revenue Code 

of 1986 (26 U.S.C. 401(a)(17), 402(g), 

415); or 

(ii) Primarily for the purpose of 

providing supplemental retirement 

benefits or other deferred compensation 

for a select group of directors, 

management or highly compensated 

employees (excluding severance 

payments described in paragraph (2)(v) 

of the term golden parachute payment 

as defined in this section and 


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permissible golden parachute payments 

described in § 1231.3(b); and 

(3) In the case of any nonqualified 

deferred compensation or supplemental 

retirement plans as described in 

paragraphs (1) and (2) of this definition, 

the following requirements shall apply: 

(i) The plan was in effect at least one 

year prior to any of the events described 

in paragraph (1)(ii) of the term golden 

parachute payment as defined in this 

section; 

(ii) Any payment made pursuant to 

such plan is made in accordance with 

the terms of the plan as in effect no later 

than one year prior to any of the events 

described in paragraph (1)(ii) of the term 

golden parachute payment as defined in 

this section and in accordance with any 

amendments to such plan during such 

one-year period that do not increase the 

benefits payable thereunder; 

(iii) The entity-affiliated party has a 

vested right, as defined under the 

applicable plan document, at the time of 

termination of employment to payments 

under such plan; 

(iv) Benefits under such plan are 

accrued each period only for current or 

prior service rendered to the employer 

(except that an allowance may be made 

for service with a predecessor 

employer); 

(v) Any payment made pursuant to 

such plan is not based on any 

discretionary acceleration of vesting or 

accrual of benefits which occurs at any 

time later than one year prior to any of 

the events described in paragraph (1)(ii) 

of the term golden parachute payment 

as defined in this section; 

(vi) The regulated entity or the Office 

of Finance has previously recognized 

compensation expense and accrued a 

liability for the benefit payments 

according to GAAP or segregated or 

otherwise set aside assets in a trust 

which may only be used to pay plan 

benefits, except that the assets of such 

trust may be available to satisfy claims 

of the regulated entity’s creditors in the 

case of insolvency; and 

(vii) Payments pursuant to such plans 

shall not be in excess of the accrued 

liability computed in accordance with 

GAAP. 

* * * * * 

Entity-affiliated party means: 

(1) With respect to the Office of 

Finance, any director, officer, or 

management of the Office of Finance; 

and 

(2) With respect to a regulated entity: 

(i) Any director, officer, employee, or 

controlling stockholder of, or agent for, 

a regulated entity; 

(ii) Any shareholder, affiliate, 

consultant, or joint venture partner of a 

regulated entity, and any other person, 

as determined by the Director (by 

regulation or on a case-by-case basis) 

that participates in the conduct of the 

affairs of a regulated entity, provided 

that a member of a Federal Home Loan 

Bank shall not be deemed to have 

participated in the affairs of that Federal 

Home Loan Bank solely by virtue of 

being a shareholder of, and obtaining 

advances from, that Federal Home Loan 

Bank; 

(iii) Any independent contractor for a 

regulated entity (including any attorney, 

appraiser, or accountant), if: 

(A) The independent contractor 

knowingly or recklessly participates in 

any violation of any law or regulation, 

any breach of fiduciary duty, or any 

unsafe or unsound practice; and 

(B) Such violation, breach, or practice 

caused, or is likely to cause, more than 

a minimal financial loss to, or a 

significant adverse effect on, the 

regulated entity; 

(iv) Any not-for-profit corporation 

that receives its principal funding, on an 

ongoing basis, from any regulated entity; 

and 

(v) The Office of Finance. 

* * * * * 

Golden parachute payment means: 

(1) Any payment (or any agreement to 

make any payment) in the nature of 

compensation by any regulated entity or 

the Office of Finance for the benefit of 

any current or former entity-affiliated 

party pursuant to an obligation of such 

regulated entity or the Office of Finance 

that: 

(i) Is contingent on, or by its terms is 

payable on or after, the termination of 

such party’s primary employment or 

affiliation with the regulated entity or 

the Office of Finance; and 

(ii) Is received on or after, or is made 

in contemplation of, any of the 

following events: 

(A) The insolvency (or similar event) 

of the regulated entity which is making 

the payment; 

(B) The appointment of any 

conservator or receiver for such 

regulated entity; or 

(C) A determination by FHFA that the 

regulated entity is in a troubled 

condition; or 

(D) The Enterprise is assigned a 

composite rating of ‘‘Significant 

Concerns’’ or ‘‘Critical Concerns’’ by 

FHFA, or the Federal Home Loan Bank 

or the Office of Finance is assigned a 

composite rating of 3 or 4 by FHFA. 

(2) Exceptions. The term golden 

parachute payment shall not include: 

(i) Any payment made pursuant to a 

pension or retirement plan which is 

qualified (or is intended within a 

reasonable period of time to be 

qualified) under section 401 of the 

Internal Revenue Code of 1986 (26 

U.S.C. 401) or pursuant to a pension or 

other retirement plan which is governed 

by the laws of any foreign country; 

(ii) Any payment made pursuant to a 

‘‘benefit plan’’ as that term is defined in 

this section; 

(iii) Any payment made pursuant to a 

bona fide deferred compensation plan or 

arrangement as that term is defined in 

this section; 

(iv) Any payment made by reason of 

death or by reason of termination 

caused by the disability of an entityaffiliated party; or 

(v) Any payment made pursuant to a 

nondiscriminatory severance pay plan 

or arrangement which provides for 

payment of severance benefits to all 

eligible employees upon involuntary 

termination other than for cause, 

voluntary resignation, or early 

retirement; provided, however, that no 

employee shall receive any such 

payment which exceeds the base 

compensation paid to such employee 

during the 12 months (or such longer 

period or greater benefit as the Director 

shall consent to) immediately preceding 

termination of employment, resignation, 

or early retirement, and such severance 

pay plan or arrangement shall not have 

been adopted or modified to increase 

the amount or scope of severance 

benefits at a time when the regulated 

entity or the Office of Finance is in a 

condition specified in paragraph (1)(ii) 

of the term golden parachute payment 

as defined in this section or in 

contemplation of such a condition 

without the prior written consent of the 

Director; or 

(vi) Any severance or similar payment 

which is required to be made pursuant 

to a State statute or foreign law which 

is applicable to all employers within the 

appropriate jurisdiction (with the 

exception of employers that may be 

exempt due to their small number of 

employees or other similar criteria); or 

(vii) Any other payment which the 

director determined to be permissible in 

accordance with § 1231.3(b). 

* * * * * 

Liability or legal expense means: 

(1) Any legal or other professional 

expense incurred in connection with 

any claim, proceeding, or action; 

(2) The amount of, and the cost 

incurred in connection with, any 

settlement of any claim, proceeding, or 

actions; and 

(3) The amount of, and any cost 

incurred in connection with, any 

judgment or penalty imposed with 

respect to any claim, proceeding, or 

action. 


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Nondiscriminatory means that the 

plan, contract, or arrangement in 

question applies to all employees of a 

regulated entity or the Office of Finance 

who meet reasonable and customary 

eligibility requirements applicable to all 

employees, such as minimum length of 

service requirements. A 

nondiscriminatory plan, contract, or 

arrangement may provide different 

benefits based only on objective criteria 

such as salary, total compensation, 

length of service, job grade, or 

classification, which are applied on a 

proportionate basis (with a variance in 

severance benefits relating to any 

criterion of plus or minus ten percent) 

to groups of employees consisting of not 

less than the lesser of 33 percent of 

employees or 1,000 employees. 

* * * * * 

Payment means: 

(1) Any direct or indirect transfer of 

any funds or any asset; 

(2) Any forgiveness of any debt or 

other obligation; 

(3) The conferring of any benefit, 

including but not limited to stock 

options and stock appreciation rights; 

and 

(4) Any segregation of any funds or 

assets, the establishment or funding of 

any trust or the purchase of or 

arrangement for any letter of credit or 

other instrument, for the purpose of 

making, or pursuant to any agreement to 

make, any payment on or after the date 

on which such funds or assets are 

segregated, or at the time of or after such 

trust is established or letter of credit or 

other instrument is made available, 

without regard to whether the obligation 

to make such payment is contingent on: 

(i) The determination, after such date, 

of the liability for the payment of such 

amount; or 

(ii) The liquidation, after such date, of 

the amount of such payment. 

Prohibited indemnification payment 

means: 

(1) Any payment (or any agreement to 

make any payment) by any regulated 

entity or the Office of Finance for the 

benefit of any current or former entityaffiliated party, to pay or reimburse 

such person for any civil money penalty 

or judgment resulting from any 

administrative or civil action instituted 

by FHFA, or for any other liability or 

legal expense with regard to any such 

administrative proceeding or civil 

action that results in a final order or 

settlement pursuant to which such 

person: 

(i) Is assessed a civil money penalty; 

(ii) Is removed from office or 

prohibited from participating in the 

conduct of the affairs of the regulated 

entity or the Office of Finance; or 

(iii) Is required to cease-and-desist 

from or take any affirmative action 

described in section 1371 of the Safety 

and Soundness Act (12 U.S.C. 4631) 

with respect to the regulated entity. 

(2) Exceptions. (i) The term prohibited 

indemnification payment shall not 

include any reasonable payment by a 

regulated entity or the Office of Finance 

that is used to purchase any commercial 

insurance policy or fidelity bond, 

provided that such insurance policy or 

fidelity bond shall not be used to pay or 

reimburse an entity-affiliated party for 

the cost of any judgment or civil money 

penalty assessed against such person in 

an administrative proceeding or civil 

action commenced by FHFA, but may 

pay any legal or professional expenses 

incurred in connection with such 

proceeding or action or the amount of 

any restitution to the regulated entity or 

the receiver or to the Office of Finance. 

(ii) The term prohibited 

indemnification payment shall not 

include any reasonable payment by a 

regulated entity or the Office of Finance 

that represents partial indemnification 

for legal or professional expenses 

specifically attributable to particular 

charges for which there has been a 

formal and final adjudication or finding 

in connection with a settlement that the 

entity-affiliated party has not violated 

certain laws or regulations, has not 

engaged in certain unsafe or unsound 

practices or breaches of fiduciary duty, 

unless the administrative proceeding or 

civil action has resulted in a final 

prohibition order against the entityaffiliated party under section 1377 of 

the Safety and Soundness Act (12 U.S.C. 

4636a). 

(iii) The term prohibited 

indemnification payment shall not 

include a payment by a regulated entity 

for a civil money penalty under section 

1376(b)(1) and (2) of the Safety and 

Soundness Act (12 U.S.C. 4636(b)(1) 

and (2)) where the regulated entity has 

been placed in conservatorship. 

* * * * * 

Safety and Soundness Act means the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 (12 

U.S.C. 4501 et seq.), as amended. 

Troubled condition means a regulated 

entity that: 

(1) Is subject to a cease-and-desist 

order or written agreement issued by 

FHFA that requires action to improve 

the financial condition of the regulated 

entity or is subject to a proceeding 

initiated by the Director, which 

contemplates the issuance of an order 

that requires action to improve the 

financial condition of the regulated 

entity, unless otherwise informed in 

writing by FHFA; or 

(2) Is informed in writing by the 

Director that it is in a troubled condition 

for purposes of the requirements of this 

part on the basis of the most recent 

report of examination or other 

information available to FHFA. 

5. Section 1231.3 is added to read as 

follows: 

§ 1231.3 Golden parachute payments. 

(a) Prohibited golden parachute 

payments. No regulated entity or the 

Office of Finance shall make or agree to 

make any prohibited golden parachute 

payment, except as provided in this 

part. 

(b) Permissible golden parachute 

payments. (1) A regulated entity or the 

Office of Finance may agree to make or 

may make a golden parachute payment 

if and to the extent that: 

(i) The Director determines that such 

a payment or agreement is permissible; 

or 

(ii) Such an agreement is made in 

order to hire a person to become an 

entity-affiliated party either at a time 

when the regulated entity or the Office 

of Finance satisfies or in an effort to 

prevent it from imminently satisfying 

any of the criteria set forth in paragraph 

(1)(ii) of the term golden parachute 

payment as defined in § 1231.2, and the 

Director consents in writing to the 

amount and terms of the golden 

parachute payment. Such consent by the 

Director shall not improve the entityaffiliated party’s position in the event of 

the insolvency of the regulated entity 

since such consent can neither bind a 

receiver nor affect the provability of 

receivership claims; or 

(iii) Such a payment is made pursuant 

to an agreement which provides for a 

reasonable severance payment, not to 

exceed 12 months salary, to an entityaffiliated party in the event of a change 

in control of the regulated entity; 

provided, however, that a regulated 

entity shall obtain the consent of the 

Director prior to making such a payment 

and this paragraph (b)(1)(iii) shall not 

apply to the regulated entity being 

placed into conservatorship or 

receivership; and 

(iv) A regulated entity or the Office of 

Finance making a request pursuant to 

paragraphs (b)(1)(i) through (iii) of this 

section shall demonstrate that it does 

not possess and is not aware of any 

information, evidence, documents, or 

other materials that would indicate that 

there is a reasonable basis to believe, at 

the time such payment is proposed to be 

made, that: 

(A) The entity-affiliated party has 

committed any fraudulent act or 

omission, breach of trust or fiduciary 

duty, or insider abuse with regard to the 


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30980 Federal Register / Vol. 74, No. 123 / Monday, June 29, 2009 / Proposed Rules 

regulated entity or the Office of Finance 

that is likely to have a material adverse 

effect on the regulated entity or the 

Office of Finance; 

(B) The entity-affiliated party is 

substantially responsible for the 

insolvency of, the appointment of a 

conservator or receiver for, or the 

troubled condition of the regulated 

entity; 

(C) The entity-affiliated party has 

materially violated any applicable 

Federal or State law or regulation that 

has had or is likely to have a material 

effect on the regulated entity or the 

Office of Finance; and 

(D) The entity-affiliated party has 

violated or conspired to violate section 

215, 657, 1006, 1014, or 1344 of title 18 

of the United States Code, or section 

1341 or 1343 of such title affecting a 

‘‘financial institution’’ as the term is 

defined in title 18 of the United States 

Code (18 U.S.C. 20). 

(2) In making a determination under 

paragraphs (b)(1)(i) through (iii) of this 

section, the Director may consider: 

(i) Whether, and to what degree, the 

entity-affiliated party was in a position 

of managerial or fiduciary 

responsibility; 

(ii) The length of time the entityaffiliated party was affiliated with the 

regulated entity or the Office of Finance, 

and the degree to which the proposed 

payment represents a reasonable 

payment for services rendered over the 

period of employment; and 

(iii) Any other factor the Director 

determines relevant to the facts and 

circumstances surrounding the golden 

parachute payment, including any 

fraudulent act or omission, breach of 

fiduciary duty, violation of law, rule, 

regulation order or written agreement, 

and the level of willful misconduct, 

breach of fiduciary duty, and 

malfeasance on the part of the entityaffiliated party. 

6. Section 1231.4 is added to read as 

follows: 

§ 1231.4 Indemnification payments. 

(a) Scope. (1) This section applies 

only after an administrative proceeding 

or civil action has been instituted by 

FHFA. 

(2) The provisions of this section shall 

remain in full force and effect with 

respect to a regulated entity that is in 

conservatorship. 

(b) Prohibited indemnification 

payments. No regulated entity or the 

Office of Finance shall make or agree to 

make any prohibited indemnification 

payment, except as provided in this 

part. 

(c) Permissible indemnification 

payments. (1) A regulated entity or the 

Office of Finance may make or agree to 

make reasonable indemnification 

payments to an entity-affiliated party 

with respect to an administrative 

proceeding or civil action initiated by 

FHFA, including payment for a civil 

money penalty pursuant to paragraph 

(2)(iii) of the definition of the term 

prohibited indemnification payment in 

§ 1231.2 if: 

(i) The board of directors of the 

regulated entity or the Office of Finance, 

in good faith, determines in writing after 

due investigation and consideration that 

the entity-affiliated party acted in good 

faith and in a manner he or she 

reasonably believed to be in the best 

interests of the regulated entity. 

(ii) The board of directors of the 

regulated entity or the Office of Finance, 

in good faith, determines in writing after 

due investigation and consideration that 

such payments will not materially 

adversely affect the safety and 

soundness of the regulated entity or the 

Office of Finance; 

(iii) The indemnification payments do 

not constitute ‘‘prohibited 

indemnification payments’’ as that term 

is defined in § 1231.2; and 

(iv) The entity-affiliated party agrees 

in writing to reimburse the regulated 

entity or the Office of Finance, to the 

extent not covered by payments from 

insurance or bonds purchased pursuant 

to paragraph (2)(i) of the definition of 

the term prohibited indemnification 

payment in § 1231.2, for that portion of 

any advanced indemnification 

payments that subsequently become 

‘‘prohibited indemnification payments,’’ 

as such term is defined in § 1231.2. 

(2) An entity-affiliated party 

requesting indemnification payments 

shall not participate in any way in the 

board’s discussion and approval of such 

payments; provided, however, that such 

entity-affiliated party may present his or 

her request to the board of directors and 

respond to any inquiries from the board 

of directors concerning his or her 

involvement in the circumstances giving 

rise to the administrative proceeding or 

civil action. 

(3) In the event that a majority of the 

members of the board of directors are 

named as respondents in an 

administrative proceeding or civil 

action and request indemnification, the 

remaining members of the board may 

authorize independent legal counsel to 

review the indemnification request and 

provide the remaining members of the 

board with a written opinion of counsel 

as to whether the conditions delineated 

in paragraph (c)(1) of this section have 

been met. If independent legal counsel 

opines that said conditions have been 

met, the remaining members of the 

board of directors may rely on such 

opinion in authorizing the requested 

indemnification. 

(4) In the event that all of the 

members of the board of directors are 

named as respondents in an 

administrative proceeding or civil 

action and request indemnification, the 

board shall authorize independent legal 

counsel to review the indemnification 

request and provide the board with a 

written opinion of counsel as to whether 

the conditions delineated in paragraph 

(c)(1) of this section have been met. If 

independent legal counsel opines that 

said conditions have been met, the 

board of directors may rely on such 

opinion in authorizing the requested 

indemnification. 

7. Section 1231.5 is revised to read as 

follows: 

§ 1231.5 Applicability in the event of 

receivership. 

The provisions of this part, or any 

consent or approval granted under the 

provisions of this part by FHFA, shall 

not in any way bind any receiver of a 

regulated entity in receivership. Any 

consent or approval granted under the 

provisions of this part by FHFA shall 

not in any way obligate FHFA or 

receiver to pay any claim or obligation 

pursuant to any golden parachute, 

severance, indemnification, or other 

agreement. Nothing in this part may be 

construed to permit the payment of 

salary or any liability or legal expense 

of an entity-affiliated party contrary to 

section 1318(e)(3) of the Safety and 

Soundness Act (12 U.S.C. 4518(e)(3)). 

8. Section 1231.6 is added to read as 

follows: 

§ 1231.6 Filing instructions. 

(a) Scope. This section contains the 

procedures to apply for the consent of 

the Director to make golden parachute 

payments under § 1231.3(b) or to make 

excess nondiscriminatory severance 

plan payments under paragraph (2)(v) of 

the definition of the term golden 

parachute payment in § 1231.2. 

(b) Where to file. A Federal Home 

Loan Bank or Office of Finance 

applicant must submit a letter 

application to the Deputy Director of the 

Division of Federal Home Loan Bank 

Supervision. An Enterprise applicant 

must submit a letter application to the 

Deputy Director of the Division of 

Enterprise Regulation. 

(c) Content of filing. The letter 

application must contain the following: 

(1) The reasons why the regulated 

entity or the Office of Finance seeks to 

make the payment; 

(2) An identification of the entityaffiliated party who will receive the 

payment; 


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(3) A copy of any contract or 

agreement regarding the subject matter 

of the filing; 

(4) The cost of the proposed payment 

and its impact on the capital and 

earnings of the regulated entity; 

(5) The reasons why the consent to 

the payment should be granted; and 

(6) Certification and documentation as 

to each of the factors listed in 

§ 1231.3(b)(1)(iv). 

(d) Additional information. FHFA 

may request additional information at 

any time during the processing of the 

letter application. 

(e) Written notice. FHFA shall provide 

the applicant with written notice of the 

decision as soon as it is rendered. 

Dated: June 22, 2009. 

James B. Lockhart III, 

Director, Federal Housing Finance Agency. 

[FR Doc. E9–15329 Filed 6–26–09; 8:45 am] 

BILLING CODE 8070–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2009–0294; Directorate 

Identifier 2009–NE–08–AD] 

RIN 2120–AA64 

Airworthiness Directives; International 

Aero Engines AG (IAE) V2500–A1, 

V2527E–A5, V2530–A5, and V2528–D5 

Turbofan Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to adopt a 

new airworthiness directive (AD) for 

International Aero Engines AG (IAE) 

V2500–A1, V2527E–A5, V2530–A5, and 

V2528–D5 turbofan engines. This 

proposed AD would require reducing 

the published life limit of certain highpressure compressor (HPC) stage 9–12 

disc assemblies. This proposed AD 

would also remove from service those 

HPC stage 9–12 disc assemblies using a 

drawdown schedule. This proposed AD 

results from IAE updating the low-cyclefatigue (LCF) life analysis for certain 

HPC stage 9–12 disc assemblies. We are 

proposing this AD to prevent an 

uncontained failure of the HPC stage 

9–12 disc assembly, resulting in an inflight engine shutdown and possible 

damage to the airplane. 

DATES: We must receive any comments 

on this proposed AD by August 28, 

2009. 

ADDRESSES: Use one of the following 

addresses to comment on this proposed 

AD. 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov and follow 

the instructions for sending your 

comments electronically. 

• Mail: Docket Management Facility, 

U.S. Department of Transportation, 1200 

New Jersey Avenue, SE., West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590–0001. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 

5 p.m., Monday through Friday, except 

Federal holidays. 

• Fax: (202) 493–2251. 

FOR FURTHER INFORMATION CONTACT: 

Mark Riley, Aerospace Engineer, Engine 

Certification Office, FAA, Engine & 

Propeller Directorate, 12 New England 

Executive Park, Burlington, MA 01803; 

e-mail: mark.riley@faa.gov; telephone 

(781) 238–7758; fax (781) 238–7199. 

Contact International Aero Engines 

AG, 400 Main Street, East Hartford, CT 

06108; telephone: (860) 565–5515; fax: 

(860) 565–5510, for a copy of the service 

information identified in this proposed 

AD. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

We invite you to send us any written 

relevant data, views, or arguments 

regarding this proposal. Send your 

comments to an address listed under 

ADDRESSES. Include ‘‘Docket No. FAA– 

2009–0294; Directorate Identifier 2009– 

NE–08–AD’’ in the subject line of your 

comments. We specifically invite 

comments on the overall regulatory, 

economic, environmental, and energy 

aspects of the proposed AD. We will 

consider all comments received by the 

closing date and may amend the 

proposed AD in light of those 

comments. 

We will post all comments we 

receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact with FAA 

personnel concerning this proposed AD. 

Using the search function of the Web 

site, anyone can find and read the 

comments in any of our dockets, 

including, if provided, the name of the 

individual who sent the comment (or 

signed the comment on behalf of an 

association, business, labor union, etc.). 

You may review the DOT’s complete 

Privacy Act Statement in the Federal 

Register published on April 11, 2000 

(65 FR 19477–78). 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Operations office between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this proposed AD, the 

regulatory evaluation, any comments 

received, and other information. The 

street address for the Docket Operations 

office (telephone (800) 647–5527) is the 

same as the Mail address provided in 

the ADDRESSES section. Comments will 

be available in the AD docket shortly 

after receipt. 

Discussion 

IAE Engineering updated their life 

analysis for certain HPC stage 9–12 disc 

assemblies installed in V2500–A1, 

V2527E–A5, V2530–A5, and V2528–D5 

turbofan engines. Stress analysis 

calculations have shown that missing 

ceramic liner material affects thermal 

gradients at the weld joining discs stage 

11 and 12. This results in an increase in 

the stress in the weld, which affects the 

life of the component. This condition, if 

not corrected, could result in 

uncontained engine failure resulting in 

an in-flight engine shutdown and 

possible damage to the airplane. 

FAA’s Determination and Requirements 

of the Proposed AD 

We have evaluated all pertinent 

information and identified an unsafe 

condition that is likely to exist or 

develop on other products of this same 

type design. We are proposing this AD, 

which would require: 

• Reducing the published life limit of 

HPC stage 9–12 disc assemblies, P/N 

2A3200, 2A3300, 2A3400, 2A3500, 

6A4131, and 6A7545, installed in 

V2500–A1 engines, from 15,000 cyclessince-new (CSN) to 14,600 CSN; and 

• Reducing the published life limit of 

HPC stage 9–12 disc assemblies, P/N 

6A4156 and 6A7547, installed in 

V2527E–A5 and V2530–A5 engines, 

from 12,000 CSN to 11,800 CSN; and 

• Reducing the published life limit of 

HPC stage 9–12 disc assemblies, P/N 

6A4156 and 6A7547, installed in 

V2528–D5 engines, from 13,200 CSN to 

11,800 CSN. 

This proposed AD would also remove 

from service those HPC stage 9–12 disc 

assemblies using a drawdown schedule. 

Costs of Compliance 

We estimate that this proposed AD 

would affect 18 engines installed on 

airplanes of U.S. registry. We also 

estimate that it would take about 200 

work-hours per engine to perform the 

proposed actions, and that the average 


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