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Effective January
1, 2026
This statement from current
NCUA Chairman Todd M. Harper states that “this final rule on
succession planning establishes a way for the NCUA to address one of
the most common causes for unplanned and unforced credit union
mergers. It also ensures that smaller institutions remain the
cornerstone of our nation’s federally insured credit union system.”
The National
Credit Union Administration (NCUA) has released a final rule on
succession planning, with an effective date of January 1, 2026. The
final rule amends parts 701 and 741 of NCUA’s
regulations. Essentially, it requires credit union boards of
directors to establish succession-planning processes for key
positions. Succession planning is the process through which federally
insured credit unions (FICUs) identify, develop, and retain key
personnel to ensure viability and continue effective performance. The
final rule covers all FICUs, which the NCUA finds appropriate to
protect the National Credit Union Share Insurance Fund (NCUSIF) from
undue risk, noting that “[t]he inclusion of FISCUs within the scope
of the final rule is consistent with the Board’s statutory authority
to ensure a safe and sound system of cooperative credit for its
member-owners.”
So, what will be
expected of credit unions? Section 701.4(e) will require a FICU to
establish a written succession plan, approved by the board of
directors, that is consistent with the credit union’s size and
complexity.
The regulation states that, at a minimum, the plan
should include the following “covered positions” or “their equivalent
if the federal credit union has adopted different position titles”:
- Members of the board of directors.
- 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 §
701.14(b)(2); and
- 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.”
For each covered
position, the plan should identify the title of each covered
position, an anticipated vacancy date, the FICU’s general plan or
strategy for permanently filling vacancies for each of the positions
and the FICU’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 promote the safe and
sound operation of the federal credit union.”
The NCUA notes
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.”
Please note that
the board of directors will be required to review the succession plan
at least every 24 months.
Furthermore, the final rule adds succession planning to
the list of items that directors must have a working familiarity
with. Per the final rule:
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:
- Basic finance and accounting practices,
including the ability to read and understand the Federal credit
union’s balance sheet and income statement; and
- The Federal credit union’s succession plan
established pursuant to paragraph (e) of this section.”
Additionally, the
NCUA has drafted a sample template for succession
plans that may be appropriate for smaller FICUs and helpful to FICUs
of all sizes. However, the NCUA noted that federally insured
state-chartered credit unions (FISCUs) choosing to use the template
should also consult any applicable state law requirements.
With respect to
Part 741, which discusses requirements for insurance, the final rule
states that:
Ҥ 741.228 Succession planning.
Any credit union
that is insured pursuant to Title II of the Act must adhere to the
requirements in § 701.4(b)(3) and (e) of this chapter, to the extent
these regulatory provisions do not conflict with an applicable state
requirement.”
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