FDIC Federal Register Citations

[Federal Register: September 12, 2006 (Volume 71, Number 176)]

[Rules and Regulations]

[Page 53547-53550]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr12se06-3]

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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AD01

Deposit Insurance Regulations; Inflation Index; Certain Retirement Accounts and

Employee Benefit Plan Accounts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is finalizing its interim rule, with changes, that

amended regulations to implement deposit insurance revisions made by

the Federal Deposit Insurance Reform Act of 2005 and the Federal

Deposit Insurance Reform Conforming Amendments Act of 2005.

DATES: The final rule is effective on October 12, 2006.

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, (202) 898-

7349, Legal Division, Federal Deposit Insurance Corporation,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

The FDIC issued an interim rule, effective April 1, 2006, to

implement the deposit-insurance revisions in the Federal Deposit

Insurance Reform Act of 2005 (Pub. L. 109-171) (``Reform Act'') and the

Federal Deposit Insurance Reform Conforming Amendments Act of 2005

(Pub. L. 109-173). The comment period on the interim rule ended on May

22, 2006, 71 FR 14629 (Mar. 23, 2006) (``Interim Rule'').

The Reform Act made three substantive changes to the insurance

coverage provisions of the Federal Deposit Insurance Act (12 U.S.C.

1813-1835a). Those changes are discussed in detail in the preamble to

the Interim Rule. Summarizing: first, section 2103(a) of the

legislation provides for an inflation index to be applied to the

current maximum deposit insurance amount of $100,000, defined in the

Reform Act as the ``standard maximum deposit insurance amount''

(``SMDIA''). Beginning April 1, 2010, and every succeeding five years,

subject to approval by the Board of Directors of the FDIC and the

National Credit Union Administration Board, the current SMDIA could be

increased by a cost-of-living adjustment.

Second, section 2103(c) of the Reform Act increases the deposit

insurance limit for ``certain retirement accounts'' from $100,000 to

$250,000, also subject to the inflation adjustment described above. The

types of accounts that come within this provision are detailed below.

And, third, section 2103(b) of the Reform Act provides per-participant

coverage to employee benefit plan accounts, even if the depository

institution at which the deposits are placed is not authorized to

accept employee benefit plan deposits. The Reform Act eliminates the

former requirement that an insured depository institution meet

prescribed capital requirements before employee benefit plan deposits

accepted by that institution would be eligible for per-participant

coverage.

II. Comments on the Interim Rule

The FDIC received three written comments on the Interim Rule. Each

of the comments was from a national banking industry trade association.

The first trade association simply stated its support for the Interim

Rule. The second association stated its support for

[[Page 53548]]

the Interim Rule and commended the FDIC for issuing the interim

regulations and making them effective within two months of the passage

of the Reform Act. The comment endorsed the FDIC's approach in amending

its regulations to implement the deposit insurance revisions to the FDI

Act.

The third banking industry trade group also expressed support for

the Interim Rule and commended the FDIC for moving quickly to put the

provisions into effect. In addition, this trade group suggested that

the FDIC clarify through the use of examples the types of deposit

accounts that are and are not eligible for the increased insurance

coverage. In particular, the trade group noted that bankers have

questions concerning some types of defined contribution plan accounts

and that the nomenclature used in the FDIC's retirement account

regulations might not match the terminology used and understood by

bankers and depositors. The association also suggested that the FDIC

provide a more detailed explanation of the term ``self-directed'' in

connection with the eligibility of certain Keogh plan accounts and

defined contribution plan accounts for the increased coverage of

$250,000.

The FDIC agrees with the trade group's comments and, therefore, has

provided below a discussion more clearly specifying the types of

retirement accounts that are, and are not, eligible for coverage up to

$250,000. We also provide a more detailed explanation of the term

``self-directed.'' The FDIC intends to include this clarifying

information in its educational materials to bankers and the public on

deposit insurance coverage.

III. The Final Rule

A. Overview

The final rule makes no substantive changes to the Interim Rule.

The only revisions to the regulation text are the technical changes

explained below. As noted, the following discussion is in response to

the suggestion made by one of the commenters that the FDIC be more

specific about the types of retirement accounts eligible for the new

$250,000 coverage limit.

B. Types of Retirement Accounts Eligible for the Increased Coverage

Limit of $250,000

As specified in the FDI Act (12 U.S.C. 1821(l)), the types of

accounts within this category of coverage continue to be comprised of:

(1) Individual retirement accounts described in section 408(a) of the

Internal Revenue Code (``IRC'') (26 U.S.C. 408(a)) (``IRAs''); (2)

eligible deferred compensation plan accounts described in section 457

of the IRC (26 U.S.C. 457) (``Section 457 Plan Accounts''); and (3)

individual account plans defined in section 3(34) of the Employee

Retirement Income Security Act (``ERISA'') (29 U.S.C. 1002) (``Defined

Contribution Plan Accounts'') and any plan described in section 401(d)

of the IRC (``Keogh Plan Accounts''), to the extent that participants

and beneficiaries under such plans have a right to direct the

investment of assets held in individual accounts maintained on their

behalf by the plans. Each of these types of retirement accounts is

discussed below.

IRAs

Section 408(a) of the IRC defines an IRA as a ``trust created or

organized in the United States for the exclusive benefit of an

individual or his or her beneficiaries, but only if the written

governing instrument creating the trust meets [specified]

requirements.'' \1\ For purposes of deposit insurance coverage, IRAs

include: traditional IRAs (into which individuals may make tax-

deductible contributions, within prescribed dollar limitations, on

which the earnings are tax-deferred); Roth IRAs \2\ (into which

individuals may make contributions (within prescribed dollar

limitations) the earnings on which are tax-free; Simplified Employee

Pension (``SEP'') IRAs \3\ (into which employers may make contributions

to traditional IRAs established by employees); and Savings Incentive

Match Plans for Employees (``SIMPLE'') IRAs \4\ (into which employers

of eligible small companies are required to make either matching

contributions to the plan or non-elective contributions paid to

eligible employees regardless of whether the employee makes salary-

reduction contributions to the plan). Like the other retirement

accounts, all IRA products must be held in the form of deposits at

FDIC-insured depository institutions to be eligible for FDIC deposit

insurance coverage. An individual's interests in all these types of

IRAs are combined with his or her interests in any of the other

retirement accounts (eligible for the $250,000 coverage limit) and

insured to a limit of $250,000. For example, if an individual has

$75,000 in a traditional IRA, $100,000 in a Roth IRA and a $100,000

interest in a self-directed Defined Contribution Plan Account, $250,000

of the combined amount of the accounts would be insured and $25,000

would be uninsured.

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\1\ During the pendency of the Interim Rule a Puerto Rico

resident askedwhether IRAs issued by FDIC-insured banks in Puerto

Rico would be eligible for the $250,000 maximum insurance coverage

provided under the Reform Act. The person expressed concern that

such IRAs might not meet the definition of IRAs in the applicable

provision of the FDI Act, 12 U.S.C. 1821(a)(3) (``Section

11(a)(3)''). Section 11(a)(3) encompasses IRAs ``described in

section 408(a) of [the Internal Revenue Code]'' (``Section

408(a)''). In answer to the person's inquiry, the FDIC deems IRAs

issued by banks in Puerto Rico to qualify as IRAs described in

Section 408(a) because the IRA provisions of the Puerto Rico tax

code are sufficiently similar to the provisions of Section 408(a).

13 L.P.R.A. 8569 (2005). This treatment of IRAs at FDIC-insured

institutions in Puerto Rico is the same as the treatment of IRAs at

credit unions in Puerto Rico insured by the National Credit Union

Share Insurance Fund. 12 CFR 745.9-2.

\2\ 26 U.S.C. 408A.

\3\ 26 U.S.C. 408(k).

\4\ 26 U.S.C. 408(p)

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The increased coverage of $250,000 for IRAs applies irrespective of

whether an IRA is ``self-directed,'' a subject more fully discussed

below.

Section 457 Plan Accounts

Section 457 plans are defined in section 457 of the IRC to include

eligible deferred compensation plans provided by state and local

governments, as well as not-for-profit organizations. As provided under

the applicable provisions of the FDI Act, deposit accounts held at

FDIC-insured institutions in connection with Section 457 Plans are

eligible for insurance coverage up to $250,000 per plan participant.

This coverage applies irrespective of whether the Section 457 Plan is

``self-directed.''

Self-Directed Defined Contribution Plan Accounts

A Defined Contribution Plan Account is defined in ERISA as a

``pension plan which provides for an individual account for each

participant and for benefits based solely upon the amount contributed

to the participant's account, and any income, expenses, gains losses,

and any forfeiture of accounts of other participants which may be

allocated to such participant's account.'' \5\ As provided for in the

applicable provisions of the FDI Act (as revised by the Reform Act),

Defined Contribution Plan Accounts held in the form of deposits at

FDIC-insured institutions are eligible for coverage up to $250,000 per

participant's interest; however, the FDI Act specifies that this

coverage is provided only if the participants under such plans have a

right to direct the investment of assets held in individual accounts

maintained on their behalf by the plans. This means that only ``self-

directed'' Defined Contribution Plan Accounts come within the ``certain

retirement account'' category of

[[Page 53549]]

coverage. As indicated in the Interim Rule and discussed in more detail

below, the FDIC continues to define the term ``self-directed'' to mean

that the plan participants have the right to direct how their funds are

invested, including the ability to direct that the funds be deposited

at an FDIC-insured institution.

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\5\ 29 U.S.C. 1002(34).

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The most common type of Defined Contribution Plan Account is the

popular section 401(k) plan, established under section 401(a) and

401(k) of the IRC (26 U.S.C. 401(a) and 401(k)). Self-directed Savings

Incentive Match Plans for Employees held in the form of 401(k) plans

(referred to as SIMPLE 401(k)s) qualify under this account category as

well as self-directed defined contribution money purchase plans (in

which employer contributions are fixed) and self-directed defined

contribution profit-sharing plans (in which employer contributions are

based on company profits).

Self-Directed Keogh Plan Accounts

Section 401(d) of the IRC describes a ``trust forming part of a

pension or profit-sharing plan which provides contributions or benefits

for employees some or all of whom are owner-employees.'' These so-

called ``Keogh'' (or ``H.R. 10'') plan accounts are designed for self-

employed individuals. As provided for in the applicable provisions of

the FDI Act (as revised by the Reform Act), ``self-directed'' Keogh

plan accounts held in the form of deposits at FDIC-insured institutions

are eligible for coverage up to $250,000 per participant's interest.

C. The Meaning of ``Self-Directed''

As indicated in the Interim Rule and reiterated above, the FDIC

continues to define the term ``self-directed'' to mean that plan

participants have the right to direct that their funds be deposited

into a specific FDIC-insured institution. One question the FDIC

received on the Interim Rule was whether an open-ended plan, in which

the participants could choose any investment, would be considered

``self-directed.'' A related question involved a feature of a plan

where, if the employee does not make any other selection, he or she

will be deemed to have chosen to invest funds in a deposit account. In

response to the comment on an open-ended investment plan, as long as

the participant has the right to choose a particular depository

institution's deposit as an investment, the FDIC would consider the

account to be ``self-directed.'' Also, if a plan has as its ``default''

investment option deposits of a particular FDIC-insured institution,

the FDIC would deem the plan to be self-directed for deposit insurance

purposes because, by inaction, the participant has directed that the

funds be placed at an FDIC-insured institution. As explained in an FDIC

advisory opinion, if a plan's only investment vehicle is the deposits

of a particular bank, so that participants have no choice of

investments, the plan would not be deemed ``self-directed'' for deposit

insurance purposes. FDIC Adv. Op. 93-65 (Sept. 17, 1993). If, however,

a plan consists only of a single employer/employee, because the

employer establishes the plan with a single-investment option of plan

assets, the plan would be considered ``self-directed.'' Hence, single

employer/employee defined contribution plans which limit the options of

fund investments to deposits of a particular insured depository

institution would be self-directed for deposit insurance purposes.

D. Accounts Not Qualifying for the Increased Coverage

In response to questions received during the comment period, it is

important to emphasize that only the types of retirement accounts

specified in the FDI Act are eligible for the increased retirement

account insurance limit of $250,000. Thus, accounts such as Coverdell

education savings accounts, Health Savings Accounts and Medical Savings

Accounts are not eligible for the increased coverage limit. Also,

accounts established under section 403(b) of the IRC (annuity contracts

for certain employees of public schools, tax-exempt organizations and

ministers) do not come within the retirement account category.

Notably, defined-benefit plans (in which benefits are predetermined

by an employee's compensation, years of service and age) are not within

the category of retirement accounts. For deposit insurance purposes,

they are treated as employee benefit plans eligible for pass-through

coverage up to $100,000 per participant's interest. 12 CFR 330.14(a).

Defined contribution plan accounts and Keogh plan accounts that are not

``self-directed'' also would not be insured under the retirement

account category. Instead, they would be insured as employee benefit

plan accounts.

E. Technical Revisions

In the Interim Rule the FDIC inadvertently retained Section 457

accounts in the category of employee benefit plans under section

330.14(a) eligible for per-participant coverage of $100,000. As noted,

Section 457 Plan Accounts are eligible for the increased coverage of

$250,000. The final rule corrects these technical errors.

IV. Paperwork Reduction Act

The final rule will implement statutory changes to the FDIC's

deposit insurance regulations. It will not involve any new collections

of information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501

et seq.). Consequently, no information collection has been submitted to

the Office of Management and Budget for review.

V. Regulatory Flexibility Act

A regulatory flexibility analysis is required only when an agency

must publish a notice of proposed rulemaking (5 U.S.C. 603, 604).

Because the revisions to part 330 were published in interim final form

without a notice of proposed rulemaking, no regulatory flexibility

analysis is required.

VI. The Treasury and General Government Appropriations Act, 1999--

Assessment of Federal Regulations and Policies on Families

The FDIC has determined that the final rule will not affect family

well-being within the meaning of section 654 of the Treasury and

General Government Appropriations Act, enacted as part of the Omnibus

Consolidated and Emergency Supplemental Appropriations Act of 1999

(Pub. L. 105-277, 112 Stat. 2681).

VII. Small Business Regulatory Enforcement Fairness Act

The Office of Management and Budget has determined that the final

rule is not a ``major rule'' within the meaning of the relevant

sections of the Small Business Regulatory Enforcement Fairness Act of

1996 (``SBREFA'') (5 U.S.C. 801 et seq.). As required by SBREFA, the

FDIC will file the appropriate reports with Congress and the General

Accounting Office so that the final rule may be reviewed.

List of Subjects in 12 CFR Part 330

Bank deposit insurance, Banks, Banking, Reporting and recordkeeping

requirements, Savings and loan associations, Trusts and trustees.

For the reasons stated above, the Board of Directors of the Federal

Deposit Insurance Corporation adopts as a final rule the interim final

rule amending 12 CFR part 330, which was published at 71 FR 14629 on

March 23, 2006, with the following changes:

PART 330--DEPOSIT INSURANCE COVERAGE

1. The authority citation for part 330 continues to read as follows:

[[Page 53550]]

Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819

(Tenth), 1820(f), 1821(a), 1822(c).

2. In section 330.14, revise paragraph (a); redesignate (b)(2)(A),

(b)(2)(B), (b)(2)(C) as (b)(2)(i), (b)(2)(ii) and (b)(2)(iii),

respectively; and revise newly designated (b)(2)(ii) to read as

follows:

Sec. 330.14 Retirement and other employee benefit plan accounts.

(a) ``Pass-through'' insurance. Any deposits of an employee benefit

plan in an insured depository institution shall be insured on a ``pass-

through'' basis, in the amount of up to the SMDIA for the non-

contingent interest of each plan participant, provided the rules in

Sec. 330.5 are satisfied. Deposits eligible for coverage under

paragraph (b)(2) of this section that also are deposits of a employee

benefit plan or deposits of an deferred compensation plan described in

section 457 of the Internal Revenue Code of 1986 (26 U.S.C. 457) in an

insured depository institution shall be insured on a ``pass-through''

basis in the amount of $250,000 for the non-contingent interest of each

plan participant, provided the rules in Sec. 330.5 are satisfied.

(b) * * *

(2) * * *

(ii) Any eligible deferred compensation plan described in section

457 of the Internal Revenue Code of 1986 (26 U.S.C. 457); and

* * * * *

By order of the Board of Directors.

Dated at Washington DC, this 5th day of September 2006.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. E6-15065 Filed 9-11-06; 8:45 am]

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