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Your Insured Deposits

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Employee Benefit Plan Accounts

An employee benefit plan account is a deposit of a pension plan, defined benefit plan or other employee benefit plan that is not self-directed. An account insured under this category must meet the definition of an employee benefit plan in section 3(3) of the Employee Retirement Income Security Act (“ERISA”) of 1974, with the exception of plans that qualify under the Certain Retirement Account ownership category. The FDIC does not insure the plan itself, but insures the deposit accounts owned by the plan.  

Additional requirements for coverage:

  • The investment and management decisions relative to the account must be controlled by a plan administrator (not self-directed by the participant).
  • The plan administrator must maintain documentation supporting the plan and
    the beneficial interest of the participants
  • The account must be properly titled as an employee benefit account with the bank

When all of these requirements are met the FDIC will insure each participant’s interest in the plan up to $250,000, separately from any accounts the employer or employee may have in the same FDIC insured institution. The FDIC often refers to this coverage as “pass-through coverage” because the insurance coverage passes through the employer (agent) that established the account to the employee who is considered the owner of the funds.

Even when plans qualify for pass-through coverage, insurance coverage cannot be determined simply by multiplying the number of participants by $250,000 because plan participants frequently have different interests in the plan. To determine the maximum amount a plan can have on deposit in a single bank and remain fully insured, first identify the participant who has the largest share of the plan assets, and calculate the participant’s share as a percentage of overall plan assets. Then, divide $250,000 by that percentage to arrive at the maximum fully insured amount that a plan can have on deposit at one bank.

For example: If a plan has 20 participants, but one participant has an 80% share of the plan assets, the most that the plan could have on deposit in one bank and remain fully insured is $312,500. This amount is calculated as follows: $250,000 divided by 80% or 0.80 = $312,500.


Example 6
Employee benefit plan that qualifies for pass-through coverage
The Happy Pet Vet Clinic has a profit-sharing plan for its employees
Account Title Balance
Happy Pet Vet Clinic Benefit Plan

$ 700,000

Plan Participants Plan Share        Share of Deposit      Amount Insured Amount Uninsured
Dr. Todd
35%
$  245,000
$  245,000
$ 0
Dr. Jones
30%
210,000
210,000
0
Tech Evans
20%
140,000
140,000
0
Tech Barnes
15%
105,000
105,000
0
Plan Total
100%
$ 700,000
$ 700,000
$ 0

Explanation
This employee benefit plan’s $700,000 deposit is fully insured. Because Dr. Todd’s share of the $700,000 deposit (35% of $700,000 = $245,000) is less than $250,000, and all of the other participants’ shares of the deposit also are less than $250,000, the entire deposit is insured.

To determine the maximum amount this employee benefit plan can deposit at one bank and ensure all of the funds are fully covered, divide $250,000 by the percentage share of the plan participant with the largest interest in the plan. In this example, the maximum fully insured balance for this plan is $714,285. This amount is calculated as follows: $250,000 divided by 35% or 0.35 = $714,285.

Plan participants who want to know more about how an employee benefit plan’s deposits are insured should consult with the plan administrator.

Important!

Employee benefit plan deposits that do not qualify for pass-through coverage, such as health and welfare plans, are insured up to $250,000 per bank. Health and welfare plans usually do not qualify for pass-through coverage because the interests of the participants are not ascertainable. A participant will receive payments from the plan based on claims they file independent of any specific ownership interest in the plan.

 



Last Updated 08/23/2011 Customer Assistance Online Form