(Update: Comment from attorney for trustee of Downey Financial.)
The failure of Orange County’s largest independent thrift has cast doubt over whether some of its former managers will get savings the company was supposed to set aside for them.
Some former executives of Downey Financial and its subsidiary Downey Savings and Loan in Newport Beach said they put part of their pay and bonuses in a deferred compensation plan and don’t know if they will get the $1 million or so back. The tax-deferred money is for retirement or other purposes.
The Federal Deposit Insurance Corp. seized Downey Savings last month and sold its deposits and branches to U.S. Bank. A few days later Downey Financial filed for bankruptcy.
Kendice Briggs, formerly executive vice president of human resources with Downey, said she is owed about $200,000, money she set aside plus interest. She plans to use the money to send her two children to college and for retirement.
“The one vehicle I thought most conservative of all my investments I am standing to lose and it scares me to death,” said Briggs, who left Downey in August.
Steve Dale, a spokesman for U.S. Bank, said his company did not take responsibility for the deferred compensation plan when it acquired Downey’s deposits and branches last month. Dale said the plan’s obligations rest either with the FDIC or the former parent Downey Financial.
An FDIC spokesman was not immediately available for comment. Michael Menkowitz, an attorney with Fox Rothschild LLP in Philadelphia who is representing Downey Financial’s bankruptcy trustee, said his firm will look into whether Downey Financial is responsible for the compensation plan. (Updated: 1:00 p.m.)
Briggs said U.S. Bank should honor the deferred compensation plan. U.S. Bank got Downey Savings cheaply and it has received billions of dollars as part of the federal government’s program to bolster capital of healthy banks, Briggs said. So as a citizen Briggs said she is paying taxes going to U.S. Bank, but as a former manager of Downey she stands to lose $200,000.
“I am at a loss as to how this is happening and how the government is allowing this to happen,” Briggs said.
Briggs estimates about 25 managers utilized the deferred compensation plan, which set aside part of a manager’s pay and bonus and also paid interest similar to market rates on certificates of deposit.
Ken Parsley, formerly vice president of loan production at Downey, who is owed $66,000 and now retired, also said U.S. Bank should honor the compensation plan.
“The money was there,” Parsley said. “Somebody now has taken the money away from us.”
But the executives should have known that such deferred plans don’t carry the same protections as the better known 401K plans, said Troy Wirth, financial adviser and head of Wirth Financial & Insurance Services in Irvine.
Wirth said qualified plans such as 401Ks require companies to set aside money in trust. Companies can’t touch that money. But nonqualifed plans, such as deferred compensation, don’t have that same requirement.
That means the deferred compensation stayed on Downey’s balance sheet. If former parent company, Downey Financial, is still responsible for the plan, then the executives are in line behind other creditors, Wirth said.
He said executives typically go for such plans despite the added risk because of limits on how much they can set aside in 401K plans.
With the limits of a 401K, executives “are not going to be able to defer enough money to retire in the lifestyle they are accustomed to,” Wirth said.
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Wirth is correct, and I was curious if this posting was going to mention the risk of deferred compensation plans or just leave that fact unmentioned. I find it suspicious that the EVP of HR wasn’t aware that deferred compensation doesn’t have the same protections as 401(k) funds.
It’s a good thing none of the rank-and-file employees were offered this program or were paid enough to simply defer large chunks of their paychecks.
Will any of these executives get hired by U.S. Bank as “consultants” for a year? That’s par for the course, too.
It’s surprising these guys weren’t aware that they would lose the money in a bankruptcy. The same thing happened at New Century and it was reported several times in the Register and on this blog. Some of the former NC execs lost well over $1 million of their retirement savings. Ouch!
I guarantee US Bank isn’t responsible for one cent of this money.
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Perhaps she should turn the table and ask why her leadership team took on so much lending risk that got them to where they are today.
These executives are all in it for themselves. They are the ones that destroyed the company! Are we suppose to feel sorry for them?
I suggest the other 25 managers wait in line for the payout. Creditors come first!
marketbuy says…….so your saying that a HR person should not complain, and should be asking about lending policies???…c’mon man lighten up, it’s Christmas.
Yeah, the HR manager isn’t going to have much say over the lending practices.
How does that old saying go? Dont put all your eggs in one basket?
watch your 401k will fail too and your insurance protection will be wothless
The regulations covering these plans need to be changed to protect workers’ savings from their bankrupt bosses and their creditors.
I worked for the U.S. operations of a very large retailer based in Canada that decided I was too highly paid (I made $103K annually) to be eligible to participate in the company 401K plan. The company moved me into a deferred comp plan similar to Downey’s. The plan administrator was very clear that if the company went under, the money in the plan would be considered an asset, subject to total loss to pay the company’s creditors.
The warnings from the plan administrator were so onerous that I immediately started looking for another job and left the company five months later, taking my talents and deferred comp balance with me.
The bottom line: there is little doubt these executives received the same warnings I did. But, the rules really need to be changed to protect workers.
I’m sure this lady did a lot of questionable things working for that company. She reaped what she sowed. Now she is whining about it.
I personally wouldn’t even hire her to be a bathroom attendant. She knows what she did.