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Ownership Categories
Employee Benefit Plan Accounts
An
employee benefit plan account is a deposit of a pension plan, profit-sharing
plan, defined benefit plan or other employee benefit plan that is not
self-directed.
Employee benefit
plan deposits that qualify for “pass-through coverage” are
insured up to the SMDIA, currently $250,000, for each participant's
non-contingent interest in the plan. This coverage is called pass-through
insurance because
the insurance coverage passes through the plan to each participant's
interest or share.
Because plan participants frequently have different interests in the plan,
insurance coverage cannot be determined simply by multiplying the number
of participants by the SMDIA.
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 the SMDIA
by that percentage to arrive at the maximum 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:: 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 the SMDIA, and all of the other participants’ shares of the deposit
also are less than the SMDIA, 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 the SMDIA 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 they routinely involve contingencies (such as getting sick in order
to receive benefits).
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