The department was presented with the following facts: A savings bank was contemplating an agreement with one of its officers to provide him with deferred compensation computed at a specified rate for a two year period. The amount attributable to the deferred compensation was to be invested in property or securities eligible for investment by savings banks. Any appreciation or depreciation was to be reflected in the amount ultimately payable to the officer and the deferred compensation was to be paid at a predetermined rate until paid in full.

Two questions were asked: (a) Would the deferred compensation constitute salary rather than retirement benefits? (b) Could the amount of the deferred compensation be considered in determining the amount of the retirement benefits to which the officer would be entitled?

The department stated its view that a contract of employment with an officer of a savings bank may include a provision for deferred compensation so long as the agreement was entered into with the approval of the board of trustees and the deferred payment represented compensation for services actually performed by the officer. Thus, the first question was answered in the affirmative. In response to the second question, the department stated that the salary on which the retirement benefits would be based could include the portion of the salary deferred pursuant to the agreement. The department noted, however, that a retirement plan may require contributions based upon salary and if such contributions do not take into consideration the amount of the deferred compensation, it is quite likely that the amount of deferred compensation could not be included in determining the retirement benefits under the formula set forth in section 250(3) of the Banking Law.

Finally, the department called attention to its policy that officer employment contracts either extend for no longer than one year or authorize termination at any time by the board of trustees. The reason for the policy was stated to be that the management of the business of the bank, including the right to hire and fire officers, must remain in the hands of the board. A contract of employment for more than one year which does not permit the board to terminate the contract at will would violate that policy. The department, therefore, recommended that the agreement be modified accordingly.

DATED: November 18, 1969