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4000 - Advisory Opinions


FDICIA Restores "Pass-Through" Insurance for 457 Plan Deposits

FDIC-91-87 December 26, 1991 Claude A. Rollin, Counsel

This is in response to your facsimiles of December 12 and 19, 1991, requesting clarification of the recently passed banking bill, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), on behalf of the *** Deferred Compensation Plan. For your information, the President signed the bill into law on December 19, 1991.

You state that the *** Deferred Compensation Plan has approximately 15,000 participants with deposits at *** Bank. You inquire whether FDICIA will provide "pass- through" insurance for all "457 Plans" and whether any 457 Plans are intended to be excluded by the legislation.

Subsection 311(b)(1) of FDICIA requires that the FDIC provide deposit insurance coverage for deposits accepted by any insured depository institution on a pro rata or "pass-through" basis to a participant in, or beneficiary of, an employee benefit plan (as defined elsewhere in the statute), including any deferred compensation plan described in section 457 of the Internal Revenue Code of 1986.

However, after December 19, 1992 (one year from the date of enactment of the bill), the FDIC cannot provide "pass-through" insurance coverage to 457 Plan deposits if, at the time the deposits are accepted, the institution is prohibited from accepting brokered deposits under section 29 of the Federal Deposit Insurance Act. Section 29 prohibits institutions which are "undercapitalized" (i.e., those that do not meet minimum capital requirements), and those that are "adequately capitalized" but have not applied to the FDIC for permission to accept brokered deposits, from accepting brokered deposits. This exclusion does not apply if, at the time the deposit is accepted, the institution meets each applicable capital standard and the depositor (i.e., the plan) receives a written statement from the institution that such deposits are eligible for insurance coverage on a "pass-through" basis at that institution.

In summary, FDICIA provides "pass-through" insurance coverage for all 457 Plan deposits except for those plan deposits that are made in an insured depository institution which, at the time the deposits are made, is prohibited from accepting brokered deposits.

Please note that subsection 311(b)(2) of FDICIA provides that a participant's interest in a 457 Plan deposit must be added, for insurance purposes, to any interests that the participant may have in IRA and/or Keogh Plan accounts at the same insured institution and to certain defined contribution pension plan accounts maintained by the participant at the same insured institution. The aggregate of these amounts will be insured up to $100,000 for each participant. This provision, however, does not go into effect until December 19, 1993 (two years from the date of enactment).

Unfortunately, we cannot issue a ruling specifically relating to *** deposits at *** Bank, nor can we provide you with a contact person at the FDIC who could ascertain whether *** Bank previously has been, or presently is, prohibited from accepting brokered deposits. To reveal this information would entail disclosing whether or not *** Bank was or is in an undercapitalized condition, and the FDIC does not currently release such information to the public. Over the coming months, the FDIC will have to work out the details of whether or how to provide this information to depositors in connection with implementing the 457 Plan provision of FDICIA.

I hope that this information has been helpful. If I can be of any further help, I can be reached at (202) 898-3985.


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