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Account Ownership Categories
Employee Benefit Plan Accounts
(12 C.F.R. § 330.14)
Definition
Employee benefit plan accounts are deposits held by any plan that satisfies the definition of an employee benefit plan in section 3(3) of the Employee Retirement Income Security Act of 1974 (ERISA). Types of plans insured under this ownership category are:
- Defined contribution plans, such as a 401(k) plan, in which each participant has one or more accounts made up of contributions from the participant and/or the employer, that are not self-directed.
- Defined benefit plans, in which the employer is obligated to pay an employee a certain benefit amount (for example, an amount based on the retired employee's years of service and salary at the time of retirement).
- Employee welfare plans or welfare benefit plans, which are established by an employer or union to provide employees with medical, health, hospitalization benefits or income in the event of sickness, accident or death. (Note : Welfare plans generally are funded through a trust).
- Keogh plans, as defined in section 401(d) of the Internal Revenue Code of 1986, that are not self-directed.
Important!
Section 457 deferred compensation plan accounts, self-directed Keogh plan accounts and self-directed defined contribution plan accounts are insured under the self-directed retirement account ownership category.
Insurance Limit
The "non-contingent interest" of each plan participant in an employee benefit plan is insured up to $100,000. A "non-contingent interest" is an interest that can be determined without evaluation of contingencies other than life expectancy. Coverage up to $100,000 for the "non-contingent" interest of each plan participant is known as "pass-through" insurance coverage because the coverage passes through the plan administrator to each plan participant.
If the interests of any plan participant are contingent and/or not ascertainable (i.e., the participant's interest cannot be determined), these participants' interests are added together and insured up to a maximum of $100,000. (Note : This rule often is a factor in the insurance coverage of deposits held by health and welfare plans.)
How to Calculate the Maximum Insurance Amount for an Employee Benefit Plan that Qualifies for "pass-through" Coverage
Coverage for an employee benefit plan's deposits is based on each participant's share of the plan. Because plan participants normally have different interests in the plan, insurance coverage cannot be determined by multiplying the number of participants' times $100,000.
The following examples illustrate how to determine the maximum amount of insurance coverage for an employee benefit plan, assuming that all of the requirements for "pass-through" coverage have been met for all participants.
| Example #27: |
| Employee benefit plan deposit that qualifies for "pass-through" coverage — example of a fully insured account |
| Account Title |
Balance |
| Happy Pet Clinic Benefit Plan |
$285,000 |
| Coverage for this account can be restated as: |
| Plan Participants |
Plan Share |
Ownership Share |
Insured Amount |
Uninsured Amount |
| Dr. Todd |
35% |
$99,750 |
$99,750 |
-0- |
| Dr. Jones |
30% |
85,500 |
85,500 |
-0- |
| Tech Evans |
20% |
57,000 |
57,000 |
-0- |
| Tech Barnes |
15% |
42,750 |
42,750 |
-0- |
| Plan Total |
100% |
$285,000 |
$285,000 |
-0- |
Explanation:The maximum amount of insurance coverage a plan can deposit at one bank and still be fully insured is determined by ensuring that the employee with the largest percentage interest in the plan deposits does not exceed $100,000.
In this example, the employee benefit plan has deposited $285,000 in one bank. The $285,000 deposit results in Dr. Todd's interest (the largest participant) being insured for $ 99,750 (35% of $285,000). When Dr. Todd's interest is fully insured, the rest of the deposit will be insured, since the other interests are smaller.
| Example #28: |
| Employee benefit plan deposit that qualifies for "pass-through" coverage — example of a partially insured account |
| Account Title |
Balance |
| Medical Services of Mainville, PC Employee Benefit Plan
|
$400,000 |
| Coverage for this account can be restated as: |
| Plan Participants |
Plan Share |
Ownership Share |
Insured Amount |
Uninsured Amount |
| Dr. Moore |
40% |
$160,000 |
$100,000 |
$ 60,000 |
| Dr. Wilson |
35% |
140,000 |
100,000 |
40,000 |
| Nurse Smith |
15% |
60,000 |
60,000 |
-0- |
| Mrs. Taylor |
10% |
40,000 |
40,000 |
-0- |
| Plan Total |
100% |
$400,000 |
$300,000 |
$100,000 |
Explanation: "Pass-through" coverage is based on each participant's interest in the plan. Most plans participants have different interests in the plan. If any employee's interest in the plan's deposits exceeds $100,000, the amount over the limit will be uninsured.
In the above example, the most that this plan can have on deposit and still be fully insured is $250,000. With a deposit of $250,000, Dr. Moore, who has the largest interest in the plan of 40%, will be insured for $100,000 ($250,000 multiplied by 40% equals $100,000).
Aggregation of Interests Held by the Same Beneficiary in Multiple Plans Established by the Same Employer
Assuming that an employee benefit plan account is entitled to "pass-through" coverage, any interests of the same participant in any other employee benefit plan established by the same employer or employee organization (for example, a union) and deposited in the same bank are combined and insured up to a total of $100,000. For example, if a company deposits funds of both pension and profit-sharing plans at the same bank, the interests of a participant in both plans will be added together and insured up to $100,000.
Capital Requirements
An FDIC-insured bank may only accept employee benefit plan deposits if it meets specific capital requirements. Note : An FDIC-insured bank's failure to meet the capital requirements will not affect the depositor's insurance coverage.
Important!
Plan participants, who want to know more about how a plan's deposits are insured, should consult with the plan administrator.
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