NCUA Succession Planning Rule Takes Effect Jan. 1

The NCUA's final rule on succession planning takes effect January 1. It requires all federally insured credit unions, whether federally or state chartered, to establish formal succession planning processes for key positions. The NCUA said the rule is intended to reduce unplanned mergers and protect the National Credit Union Share Insurance Fund.

Under new Section 701.4(e), each FICU must adopt a written succession plan, approved by the board of directors and tailored to the credit union's size and complexity. At a minimum, the plan must address the following covered positions (or equivalent titles):

• Members of the board of directors
• Management officials, assistant management officials (if provided for in bylaws), and senior executive officers
• Any other personnel the board deems critical based on the credit union's operations, risk, or planned changes

For each covered position, the plan must identify the position title, anticipated vacancy date, a strategy for filling vacancies, and an approach for developing and recruiting qualified candidates. The plan must also consider how diversity of skills supports the safe and sound operation of the credit union.

The NCUA expects succession plans to include estimated budget impacts, such as recruiting costs or increased compensation for new hires. Exact figures are not required, but reasonable estimates are expected to support planning. Boards must review the succession plan at least once every 24 months.

The rule also adds succession planning to the list of topics with which directors must have a working familiarity. New directors must demonstrate familiarity within six months of election or appointment, along with basic finance and accounting practices.

The NCUA has released a sample succession planning template appropriate for smaller credit unions. Federally insured state-chartered credit unions using the template should also ensure compliance with applicable state laws.

Review the final rule here.