The National Credit Union Administration (NCUA) recently issued its new succession planning rule in final form. The rule is effective January 1, 2026, but it’s a good idea to think about how your credit union will address this rule soon.
The NCUA cited two main reasons for issuance of this rule: (1) industry consolidation and the role that a lack of succession planning plays in credit union mergers; and (2) the ongoing volume of retirements of “baby boomer” generation credit union leaders.
The succession planning rule’s top 5 noteworthy requirements include:
1. Covered Positions
The succession plan must cover members of the credit union’s Board of Directors, management officials, and assistant management officials, as defined in the credit union’s by-laws, senior executive officers, and other personnel deemed critical. It is noteworthy that Supervisory Committee members, credit committee members, and credit officers are not included as required positions in the final rule; these positions were listed in the original proposed rule.
There is some flexibility regarding who must be included. Some positions would clearly be included, such as CEO and CFO. Other positions will vary by credit union size and complexity, such as Chief Operating Officer, Chief Lending Officer, or the Directors of Human Resources, Information Technology, Deposit Operations, or the Treasury function. Other positions to consider include the leader(s) of a wholly owned CUSO, leadership of the Internal Audit function, or the Chair of the Supervisory Committee.
2. Defining Retirement Dates
“Expected” retirement or vacancy dates are to be articulated for positions covered by the rule. The rule allows for “unknown” to be an answer to the retirement date question. However, credit unions are encouraged to establish a plan with “sufficient detail” to allow for effective planning. In addition, the NCUA’s commentary includes their thought that “the inclusion of a specific or approximate date will promote conversations within the credit union and allow for better planning in advance of a transition, thus accomplishing the purpose of the final rule.” To the extent that Board members serve defined terms, the end of an individual Board member’s term would likely be the vacancy date for those positions. Establishing vacancy dates for credit union Board seats where there are no defined terms will be more challenging.
3. How Will You Find People?
The credit union’s plan to fill positions as they are vacated, including recruiting strategies, must be included with the succession plan. When internal candidates are part of the plan, activities related to developing those employees’ skill sets would likely be part of this discussion. There are scenarios where this could be awkward from a personnel management standpoint. It will be important to express the difference between a plan and a commitment in some cases related to the role current employees may play in a succession plan.
4. Board Oversight
The Board must have a “working familiarity” with the succession plan. From a practical standpoint, incorporating a discussion of this plan into new Board member orientation as well as periodic Board reviews, which must be conducted at least every 24 months, will become standard practice.
5. This Means You
This rule applies to ALL federally insured credit unions, whether federally or state chartered. The NCUA expresses their belief that this rule does not conflict with any State’s existing succession planning regulations.
There are a lot of things to think about related to succession planning. Don’t get overwhelmed. Here are four elements to help frame the conversation at your credit union.
First, allocate time to give succession planning real thought. It will be tempting to address this new rule from a purely compliance standpoint. However, there is value to be derived by credit unions who establish or update their succession plans with the perspective that planning for leadership succession is an important risk management process, not just a regulatory compliance requirement. Plans should be made to spend time on succession planning in 2025, regardless of whether you have an existing succession plan or what that plan looks like.
Regardless of regulatory requirements, failure to have a meaningful succession plan creates uncertainty. That uncertainty leads to organizational inertia, which is not a healthy condition for any organization. This inertia manifests because those personnel who report to the outgoing leader are unsure of medium or long-term priorities and strategy. The outgoing leader is no longer in a position to establish longer-term goals or initiate long-term strategy. If no one knows who the next leader will be or when that person might be in place, there is a tendency to just wait. Therefore, decisions are deferred, changes are not implemented timely, and opportunities are missed. Organizations in this situation are standing still. With other competing organizations continuing to move forward, the organization falls behind. This inertia condition is difficult to “see” when your organization is experiencing it. Look for it and call it out because it is dangerous when left unchecked.
Second, there are tools to help with some of the elements of succession plans. The element of defining a “turnover” date for specific positions can be one of the more challenging elements. When the individual in the leadership role simply does not want to commit to a timeline, what can you do?
Many credit unions are entering into deferred compensation arrangements to help establish a timeline for leadership transitions. Referring to these deferred compensation agreements as retention agreements is appropriate to the extent they establish a financial incentive for the person in the leadership role to stay through a specific date rather than an incentive to leave by a certain date. The most common in recent years is the split dollar life insurance arrangement.
I’ve personally presented seminars and had many discussions with credit unions leaders and Boards about the pros and cons of split dollar life insurance plans. The most important thing to remember is that these plans are customized for each situation. Talk to people from two different credit unions about their split dollar plans and you are certain to identify notable differences between those arrangements if you know what questions to ask, even when the plans initially appear to be the same. It’s critical to get advice from a knowledgeable expert on these before signing contracts. From a control standpoint, getting advice from someone other than the person selling the policy is strongly advised. That person probably is an expert, but they have an inherent conflict since they are also trying to make a sale.
The benefit of split dollar plans is that they allow flexibility for tax-free cash payments to the executive on a pre-defined timeline. That timeline can be established around a person’s planned or intended retirement date, providing an incentive to remain engaged through that date but then essentially no incentive to stay beyond that date. Again, advice from a knowledgeable professional is important to make sure the split dollar plan you enter into is right for your credit union’s succession planning objectives.
Third, succession plans are expressly not required to be made public. However, once the rule is in effect, it is reasonable to assume that some stakeholder(s) will ask for the credit union’s succession plan. Addressing this request in a manner that is responsive to that stakeholder (which could be a member, a vendor, a current employee, or a potential management hire candidate) while also maintaining appropriate confidentiality could prove awkward. Is it possible that your credit union’s succession plan could be an asset in the context of demonstrating to current and future stakeholders that you have addressed succession risks in a thoughtful and effective manner? What message might it send to refuse to share your succession plan?
Fourth, what if you truly don’t have a plan or your plan is to work with another credit union on a path that would eventually lead to a merger or merger-like arrangement? This is a real conversation at some credit unions, especially those that are smaller. The NCUA put forth this succession planning rule in part to reduce the volume of mergers. Stating that your plan is to integrate or merge your operation into another credit union seems counter to that regulatory objective. It remains to be seen how the NCUA might react to such a plan.
Looking Ahead
There is the thought that this rule exacerbates the problem of regulatory compliance for smaller credit unions. Resource-constrained credit unions already struggle to keep up with regulatory compliance requirements, and adding this to the “to do” list for 2025 does not help. However, in a longer-term view, pro-actively thinking about and planning for leadership succession is critical to every credit union’s viability. Make time for it in 2025.
If you have questions, need guidance, or want to explore ideas with an independent source, feel free to reach out to myself, Jeff Paille at jpaille@bonadio.com, or another member of our Financial Services Team. We’re here to help and would be happy to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
