Waiver Provisions in Executive Compensation Packages Carry Heavy Ramifications: NYE v. Ingersoll Rand Co.

The advice that credit union executives should always read a document before signing remains sound, especially in light of a recent court ruling. In Nye v. Ingersoll Rand Co., the court found that executives were entitled to benefits from two different incentive plans that they had enrolled in, despite the claim that their entitlement under the initial plan had expired. The result of this case is important for two reasons. First, you may be entitled to benefits based on the specific terms of an agreement, regardless of any representations to the contrary. Second, the positive result for the executives is unlikely to be repeated, as institutions and their counsels heed the warnings of the case and include more clearly defined waivers in their offers.

A hypothetical credit union example based on the facts of Nye. Let’s say a Board of Directors of a credit union wants to solicit merger offers. As part of its efforts to entice suitors, the Board devises an incentive plan that offers benefits to executives remaining with the credit union following its acquisition. This plan is aimed at making the credit union more attractive by encouraging key executives to undertake efforts to increase the value of the credit union and continuing to retain such executives following its acquisition. Under the terms of the plan, the credit union awards enrolled executives cash compensation in an amount tied to the final purchase price. The plan contains a clause making it effective until the credit union is acquired and does not contain a limitation on the length of the plan, nor does it provide the right for the credit union to unilaterally cancel it. The executives complete the appropriate paperwork and are The advice that credit union executives should always read a document before signing remains sound, especially in light of a recent court ruling. In Nye v. Ingersoll Rand Co., the court found that executives were entitled to benefits from two different incentive plans that they had enrolled in, despite the claim that their entitlement under the initial plan had expired. The result of this case is important for two reasons. First, you may be entitled to benefits based on the specific terms of an agreement, regardless of any representations to the contrary. Second, the positive result for the executives is unlikely to be repeated, as institutions and their counsels heed the warnings of the case and include more clearly defined waivers in their offers.

A hypothetical credit union example based on the facts of Nye. Let’s say a Board of Directors of a credit union wants to solicit merger offers. As part of its efforts to entice suitors, the Board devises an incentive plan that offers benefits to executives remaining with the credit union following its acquisition. This plan is aimed at making the credit union more attractive by encouraging key executives to undertake efforts to increase the value of the credit union and continuing to retain such executives following its acquisition. Under the terms of the plan, the credit union awards enrolled executives cash compensation in an amount tied to the final purchase price. The plan contains a clause making it effective until the credit union is acquired and does not contain a limitation on the length of the plan, nor does it provide the right for the credit union to unilaterally cancel it. The executives complete the appropriate paperwork and are State Exchanges Present Unique Opportunities for a Credit Union or Credit Union Coalition

Health care reform may present an opportunity for credit unions to further cement their influence within the community while seizing upon a business opportunity. In this regard, the timing may be ripe for credit unions, or a credit union coalition, to seize their place in the health care marketplace by creating and offering “Qualified Health Plans” through Exchanges under health care reform. A Qualified Health Plan will be a separate and independent entity—structured as a cooperative (much like credit unions themselves)—that offers medical coverage to the public at large. The medical coverage will provide three fixed levels of benefits and also have the benefit of federal subsidies for low-income individuals.

The federal government—through the Department of Health and Human Services (“HHS”)—will mandate certain requirements on the State Exchanges. On July 11, 2011, HHS released proposed rules outlining the requirements for states to establish new state-based competitive health insurance marketplaces (referred herein as “Exchanges”) as required under health care reform. Starting in 2014, individuals and small businesses will have the ability to purchase health insurance through Exchanges, which are intended to provide essential health benefits coverage at affordable prices.

Under HHS’s proposed rules, states have flexibility in determining how they will structure their Exchanges. Exchanges can be structured as non-profit entities, stand-alone public agencies, part of an already existing public agency, or as any combination of the three. Among other things, the Exchanges will certify health plans as Qualified Health Plans eligible to be offered on the Exchange, operate a website to facilitate comparisons among Qualified Health Plans for consumers, operate a toll-free customer support line, conduct outreach and education regarding Qualified Health Plans, and facilitate enrollment in Qualified Health Plans. States must submit written plans for complying with the rule’s Exchange requirements to HHS for approval no later than January 1, 2013.

Individuals with incomes that are at or below 400% of the federal poverty level who purchase health coverage from a Qualified Health Plan will be eligible for a federal premium assistance tax credit towards the cost of the coverage.

At the state level, the creation of Exchanges is beginning to take root and early entry into this realm may help influence the eligibility of those that may offer Qualified Health Plans as well as the structure of a given state’s Exchange. In fact, some states have already commenced taking measures to lay the foundation for the state’s Exchange. For example, New York State Governor Cuomo announced on June 13, 2011, that he submitted legislation establishing New York’s Exchange under health care reform. Governor Cuomo’s proposed Exchange will be established as a public benefit corporation managed by a seven member Board of Directors, which will consult with an eighteen-member Advisory Committee composed of stakeholders and sectors that will be impacted by the operation of the Exchange, including small businesses, the medical community, and health care consumers. The Exchange would begin offering qualified health coverage to businesses and individuals on or before January 1, 2014. However, what New York’s Exchange will exactly look like and what entities will be approved for offering Qualified Health Plans remains open.