4000 - Advisory Opinions
Insurance Coverage for Unallocated Deposits by Employee Pension or Profit Sharing Plans
February 24, 1988
J. William Via, Jr., Counsel
This is in response to your inquiry (addressed to Mr. Hood) concerning, in essence, how to obtain full deposit insurance coverage for unallocated deposits by a qualified employee pension or profit sharing plan (which is assumed, for the sake of this reply, to be fully funded and to comply with the applicable provisions of 12 C.F.R., Part 330).
For deposit insurance purposes, the ownership interest of a participant in such a deposit is deemed to be the amount that is proportionate to that participant's interest in the entire assets of the plan. Thus, to use your example, if a plan participant owns a $500,000 interest (which is the maximum amount for any individual) in a plan that has total assets of $25,000,000 then the participant owns 2 percent of the plan's assets and would be treated for deposit insurance purposes as owning 2 percent of each deposit of plan funds. Given that the maximum deposit insurance in a single bank for a participant's ownership interest is $100,000, we divide that amount by 2 percent and obtain $5,000,000, which is the maximum amount that the plan could have on deposit and fully insured in a single bank. We can arrive at the same $5,000,000 maximum by employing the method recounted in the enclosure with your letter: divide the per-bank insurance limit for a single participant's ownership interest of $100,000 by the maximum ownership in the plan for one individual, here $500,000, which yields one-fifth, or 20 percent, and apply that fraction, or percentage, to $25,000,000, being the total assets in the plan, and the result is $5,000,000.
If the plan deposits its entire assets of $25,000,000 in a single bank and five participants own the plan's maximum individual benefit of $500,000, then the deposit would be insured for $23,000,000, leaving $2,000,000 uninsured or $400,000 uninsured for each of the five participants owning $500,000, as you recognize. While the insured amount here of $23,000,000 is greater than the $5,000,000 figure derived in the preceding paragraph, the latter represents the maximum fully insured amount that the plan can have on deposit in a single bank. Thus, the plan would need to deposit no more than $5,000,000 in each of at least five banks for its deposits to be fully insured; in fact, the plan would need to use more than five banks for this purpose to allow for additions of interest to each of the five maximum ownership accounts.