Support journalism that matters to you

Since COVID-19 impacts us all and we want everyone in our community to have the important information they need, we have decided to make all coronavirus related stories free to read on theday.com/coronavirus. While we are providing free access to articles, they are not free to produce. The newsroom is working long hours to provide you the news and information you need during this health emergency. Please consider supporting our work by subscribing or donating.

Failed credit union employee denied payment

Get the weekly rundown
Sign up to receive our weekly BizBuzz newsletter

A local resident who had a deferred compensation agreement with the failed New London Security Federal Credit Union has been denied a lump-sum payment of more than $265,000.

The unnamed resident, a former credit union employee, also won't be receiving her expected retirement benefits, according to a decision by the board of the National Credit Union Administration.

The decision was issued Nov. 19 but became available on the NCUA Web site only this week.

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.

"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 the 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," said the NCUA. "Unfortunately ... this insolvency risk actually materialized in the case of New London (Security)."

The trust began in 1997 when New London Security set aside $55,000 and agreed to collect funds for future payments, according to the NCUA.

The decision redacted the name of the credit union employee, as well as when she retired and at what age. People with knowledge of the credit union said it had only one employee for many years, Mary Lou Richards, who lives in Waterford.

The agreement, said the NCUA, called for the employee to receive 80 percent of her monthly pay at the time of her retirement, but it made no mention of a lump sum payment.

The payments were made, said the NCUA, until July 2008, when the NCUA dissolved the Jewish-run institution, later declaring that the credit union's late investment broker, Edwin F. Rachleff, had most likely been embezzling funds for years.

"There appears to have been a massive fraud at New London," said the NCUA decision. "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."

At least one credit union member who lost money beyond the $100,000 insurance limit at the time of the institution's failure filed an appeal looking for restitution of more money. The NCUA denied the claim.

The female credit union member had four joint accounts with her husband and two children, and had requested $54,458.47 in extra insurance payouts. The claimant, who was unidentified, argued credit union personnel had assured her that the joint-account arrangement would fully protect her assets, but the NCUA said "statements made by credit union personnel are not binding."

The other family members' assets were fully insured, but the member's total funds exceeded the insurance limit and therefore a portion was uninsured, the NCUA ruled in March.

l.howard@theday.com

READER COMMENTS

Loading comments...
Hide Comments

TRENDING

PODCASTS