FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Insurance Coverage for Various Colorado Public Unit Entities
November 6, 1987
Roger A. Hood, Assistant General Counsel
In your letter of July 8, 1987, you requested the FDIC to make 61 deposit insurance coverage determinations for various entities under Colorado state law. The FDIC believes it appropriate for you to consult with state legal counsel, who have the greatest familiarity with Colorado law, to satisfy yourselves as to the insurance coverage for each public unit. While the FDIC empathizes with the need for various entities to meet the collaterization requirements of state law, you will appreciate the impossibility of responding to similar questions posed by public units of one or more of the 50 states and trust territories encompassed by FDIC coverage. The FDIC will be happy, however, to provide general guidance as to pertinent FDIC regulations in determining insurance coverage.
Initially, I would refer you to my June 10, 1987 letter to ***, a copy of which was forwarded to you and is enclosed for reference. As you may recall, that letter set out common questions and answers relating to public units. In addition, I have also attached a copy of our relevant regulations. Your questions can be categorized for insurance purposes as follows: (1) funds held by counties and towns, (2) funds held by special districts, (3) public bond and public debt retirement funds, (4) deferred compensation, police and firemen's pension funds.
Public Unit Funds
With regard to the first three categories, deposit insurance coverage is a function of the following points:
1. The public unit must be a state, county, municipality, or political subdivision of one of those entities. (*** letter, Question 1).
2. In order to qualify as a political subdivision the requirements of section 330.8(c) must be met. A department, board, or special district, for example, may qualify as a political subdivision of a public unit if (1) its creation has been expressly authorized by state statute, (2) some functions of government have been delegated by state statute, and (3) funds have been allocated by statute or ordinance for the entity's exclusive use and control. The political subdivision must, therefore, function as an independent governmental entity. (*** letter, Question 9).
3. The official custodian of a public unit, rather than the public unit itself, is insured as the depositor. The official custodian must have plenary authority (which includes control) over the funds of the public unit. Control includes possession, as well as the authority to establish accounts in insured banks and to make deposits, withdrawals, and disbursements. (*** letter, Questions 2 and 3).
4. Where there are two or more official custodians of the same public unit, each official custodian may be insured separately from the others if each has plenary authority over the funds owned by the same public unit. Funds under the joint custody of two or more official custodians are deemed to be held by one custodian. If multiple official custodians are appointed over the funds of a public unit for the purpose of increasing deposit insurance coverage, then the insurance coverage is attributed solely to the actual official custodian. (*** letter, Question 3).
5. An official custodian may act on behalf of more than one public unit, and will be separately insured as to the funds of each public unit, pursuant to section 330.8(a)(6). (*** letter, Question 4).
6. All time and savings deposits owned by a public unit and deposited by the same custodian in the same insured bank are added together and insured to $100,000, regardless of the number of accounts involved. 12 C.F.R. § 330.8(a)(2). Demand deposits are similarly aggregated as to each custodian and insured to $100,000. 12 C.F.R. § 330.8(a)(5). (The difference between demand deposits, and time and savings deposits are explained in the Childears letter at Questions 5-8.) Segregating funds owned by the same public unit into different accounts for different purposes does not increase insurance coverage. Neither the source of the funds nor their intended use affects insurance coverage. (*** letter, Question 10).
7. Where an official custodian deposits funds in an insured bank outside the state in which the public unit is located, all the funds, whether demand, time, or savings deposits, are aggregated together and insured to $100,000. 12 C.F.R. § 330.8(a)(5).
Public Bond Issues
Section 330.8(b) provides that where an officer, agent, or employee of a public unit has custody of funds which by law or under a bond indenture are required to be paid to the holders of bonds issued by the public unit, any deposit of those funds in an insured bank shall be deemed to be a deposit by a trustee of trust funds of which the bondholders are pro rata beneficiaries. The beneficial interest of each bondholder is separately insured to $100,000 without regard to other funds owned by the public unit. (*** letter, Question 11).
Pension and Profit-Sharing Plans
Generally, deposits held pursuant to pension or profit-sharing plans are considered to be trust funds. Each participant's interest in such plan is insured to $100,000, providing the valuation of each participant's interest can be determined without the evaluation of contingencies. 12 C.F.R. §§ 330.10, 330.1(c)(1) and (c)(4). In connection with pension and other trusteed employee benefit funds, the trust interest of each participant is evaluated as if it had fully vested as of the date the insured bank was closed. 12 C.F.R. § 330.1(c)(1).
The FDIC has determined in connection with a number of state sponsored deferred compensation plans, however, that these deposits are not insured per participant. Section 457 of the Internal Revenue Code (26 U.S.C. § 457) provides that the deposits maintained in accordance with state deferred compensation plans constitute general property of the state and are subject to claims of its general creditors. The 1986 amendment to I.R.C. section 457 extends this rule to local governments and tax-exempt organizations for taxable years beginning December 31, 1988. 26 U.S.C.A. § 457 (West Supp. 1987).
As a reminder, the recordkeeping requirements of section 330.1(b) must be met in order to make a claim for deposit insurance. The foregoing should provide sufficient information for your office or legal counsel to make a determination of deposit insurance coverage for funds held by public units under Colorado law.