Federal Deposit
Insurance Corporation

Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Attention: Comments/Legal ESS

Re: Deposit Insurance Coverage; Accounts of Qualified Tuition Savings Programs
Under Section 529 of the Internal Revenue Code
70 FR 33689 (June 9, 2005)

Dear Sir or Madam:

America’s Community Bankers (“ACB”) is pleased to comment on the Federal Deposit Insurance Corporation’s (“FDIC”) interim final rule that revises the deposit insurance regulations for accounts of qualified savings plans under section 529 of the Internal Revenue Code.

ACB believes that the interim final rule is good public policy and will encourage more persons to participate in state sponsored college savings programs.

Background

The FDIC has amended its deposit insurance regulations to provide “pass-through” deposit insurance coverage to qualified tuition savings programs established under section 529 of the Internal Revenue Code. Section 529 provides financial planning and tax benefits to persons that invest in state sponsored tuition savings plans. Participants in 529 plans make contributions to a state investment trust, and some state plans allow participants to direct their tuition savings payments to be invested in bank deposits.

The Securities and Exchange Commission has taken the position that, under the federal securities laws, section 529 tuition savings plans are not exempt from registration under the Securities Act of 1933 unless such interests are located in a state public instrumentality, such as a state investment trust.
This interpretation created a gap in deposit insurance coverage for plan participants that wanted to invest their contributions in bank deposits. Under the FDIC’s previous rule, bank deposits of a state investment trust were subject to aggregation and were insured up to a total of $100,000. The interest of each plan participant was not insured up to $100,000.

Under the FDIC’s revised insurance regulations, however, 529 plans that include bank deposits will be insured on a “pass-through” basis if 1) each deposit may be traced to one or more investors; and 2) the FDIC’s disclosure rules for “pass through” coverage are satisfied. Contributions to 529 plans that meet these requirements are insured up to $100,000 for each participant or investor.

ACB Position

ACB strongly believes that it is good public policy to provide pass through deposit insurance to 529 college savings plans composed of bank deposits.

The price of college tuition is daunting for most American families. According to the College Board, the average cost of attending a public college or university for the 2004/2005 academic year was $11,354, while private institutions averaged $27,516. Even if tuition rates were static, a four-year college education would cost between $45,000 and $110,000.

Providing deposit insurance coverage to pre-paid tuition savings payments invested in bank deposits will make saving for college more attractive and more manageable for many families. The new rule allows risk-averse investors to save money by pre-paying college tuition while knowing that their hard earned dollars are insured by the FDIC.

In creating tax benefits in connection with section 529 college tuition savings programs, Congress intended “to encourage persons to save to meet post-secondary educational expenses.” To further carry out this important public policy goal, ACB urges the FDIC to inform the investment community and administrators of state sponsored tuition savings plans of this significant rule change. It is also important to explain how plan participants with multiple children may structure prepaid tuition accounts to receive the maximum amount of deposit insurance coverage. We also urge the FDIC to update its deposit insurance brochures for the public and for bank employees to reflect the expanded deposit insurance coverage.

Thank you for the opportunity to comment on this important matter. Should you have any questions, please contact the undersigned at 202-857-3121 or Krista Shonk at 202-857-3187 or kshonk@acbankers.org.

Sincerely,

Charlotte M. Bahin
Senior Vice President
Regulatory Affairs