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CU System
NCUA denies lump-sum payment to employee of defunct CU
WASHINGTON (12/15/09)--The National Credit Union Administration (NCUA) has denied a lump sum payment of more than $265,000 to a person who had a deferred compensation agreement with the failed New London (Conn.) Security FCU. The decision issued Nov. 19 was made available last week on NCUA’s website (theday.com Dec. 12). The unnamed resident, a former credit union employee, also will not receive her expected retirement benefits, NCUA said. The type of deferred compensation agreement, known as a “Rabbi Trust,” placed the employee’s benefits at risk, NCUA said in a decision that appealed a ruling in its Asset Management and Assistance Center, the publication said. “The reason parties entered into Rabbi Trusts organized this way is to inject sufficient uncertainty in the possibility of payment to the beneficiary that the Internal Revenue Service will not treat the benefits under the trust as recognized, and thus taxable, at the time the trust is first funded,” NCUA said on its website. “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,” NCUA added. “Unfortunately ... this insolvency risk materialized in the case of New London [Security FCU].” NCUA dissolved the credit union in July 2008, stating its late investment broker, Edwin F. Rachleff, had likely been embezzling funds for years, the publication said. Rachleff committed suicide in August 2008. “There appears to have been massive fraud at New London,” the NCUA decision said. “As a result, there are almost no assets available to pay claims and, presently, none available for general creditors.”


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