ALEXANDRIA, Va.-The NCUA Board denied an appeal by the lone employee of New London Security FCU to receive a $265,000 lump-sum payout for her service at the failed Connecticut credit union.
The NCUA said in a decision appealing a ruling by its Asset Management and Assistance Center that the type of deferred compensation agreed to, known as a "Rabbi Trust," put the employee's benefits at risk when the $12.7-million credit union failed last year, costing the National CU Share Insurance Fund $10 million in losses.
An investigation since then showed that Edwin Rachleff, the 82-year-old former director and investment advisor for the credit union may have stolen $12 million of the CU's funds. On July 28, 2008-the day NCUA took over the 73-year-old credit union-Rachleff leaped to his death.
"There appears to have been a massive fraud at New London," said the NCUA decision, arrived at during a closed meeting. "As a result, there are almost no assets available to pay any claims and, presently, none available for general creditors. Accordingly, the Board can provide (the former employee) neither a monthly payment nor a timetable as to actual future contributions."
Under the plan, the CU contributed $55,000 into the trust on Jan. 29, 1997 and agreed to collect future payments from the beneficiary. Upon retirement, the beneficiary was to receive 80% of her monthly pay, minus Social Security benefits.
"The reason parties enter into Rabbi Trusts organized this way is to inject sufficient uncertainty in the possibility of payment to the beneficiary that the IRS will not treat the benefits under the trust as recognized, and thus taxable, at the time the trust is first funded," according to NCUA. "The beneficiary of a Rabbi Trust obtains a tax benefit in exchange for the risk that the institution might become insolvent before the promised benefits are all paid off.
"Unfortunately...this insolvency risk actually materialized in the case of New London (Security)."
The NCUA ruling redacted the name of the credit union employee, but the credit union had only one employee, Mary Lou Richards.
