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Financial Institution Letters

Deposit Insurance Coverage

February 13, 1995


SUBJECT: New "Pass-Through" Deposit Insurance Disclosure Rules

On January 31, 1995, the FDIC Board of Directors adopted final revisions to its deposit insurance regulations (Part 330). The most significant change requires institutions to provide timely disclosures to administrators of certain retirement and other employee benefit plan accounts about whether their funds qualify for "pass-through" insurance coverage. Among the types of accounts affected by the new disclosure rules are 401(k) retirement accounts, Keogh plan accounts, and corporate pension plan and profit-sharing plan accounts. As part of the same action, the FDIC adopted certain technical amendments to Part 330. A copy of the final rules is attached. The "pass-through" revisions are effective July 1, 1995, while the technical revisions are effective March 13, 1995.

In general, "pass-through" insurance means that each participant in the account, rather than the total account balance, is individually insured up to $100,000. For example, if there are 25 participants in the account, the funds would be insured by the FDIC to $2.5 million if the insured depository institution were to fail (providing each participant has a $100,000 interest in the account). Without "pass-through" insurance, the entire $2.5 million account would qualify for only $100,000 of insurance coverage.

Section 311 of the Federal Deposit Insurance Corporation Improvement Act of 1991 includes a requirement that, effective December 19, 1992, depositors in certain retirement and other employee benefit accounts are entitled to "pass-through" deposit insurance coverage based in part on whether the insured institution satisfies certain capital standards. The FDIC issued proposed rules on November 30, 1993 (see FIL-84-93, dated December 10, 1993) in response to numerous comments about the difficulty of obtaining public information about an institution's capital status and, thus, knowledge of whether these types of deposits would be eligible for "pass-through" insurance.

The final "pass-through" disclosure rules contain a number of revisions from the proposal, designed to reduce the uncertainty for depositors, primarily employee benefit plan administrators, while at the same time minimizing the regulatory requirements for institutions. The new rules require that:

  • Upon request from an administrator or manager of an existing account, an insured depository institution must disclose in writing its current "prompt corrective action" (PCA) capital category (ranging from "well capitalized" to "critically undercapitalized"), various capital ratios, and a statement whether, in the institution's judgment, the deposits would be eligible for "pass-through" insurance;

  • When an affected account is opened, the institution must disclose in writing its PCA capital category, a description of the requirements for "pass-through" insurance coverage, and a statement whether, in the institution's judgement, the deposits are eligible for such coverage; and

  • When an existing account is believed to be no longer eligible for "pass-through" insurance coverage, the institution will have 10 business days to disclose in writing to all affected depositors the institution's PCA capital category and a notice that new, rolled-over or renewed deposits will not be eligible for "pass-through" insurance (existing time deposits would continue to receive "pass-through" insurance until they mature).

The effective date of the new "pass-through" disclosure rules is delayed until July 1, 1995, to provide insured institutions the time needed to establish policies and procedures to comply with the new requirements. However, there also is a "catch-up" requirement that insured institutions provide certain disclosures to affected employee benefit plan depositors if, at the time their deposits were accepted, the institution did not qualify for "pass-through" insurance coverage. This covers deposits made between December 19, 1992, and July 1, 1995.

The attached Federal Register document also explains the technical amendments to Part 330 involving joint accounts, accounts where an insured institution is acting in a fiduciary capacity, and commingled funds of a bankruptcy estate.

Questions about the final revisions to the insurance rules can be directed to Joseph A. DiNuzzo, a Counsel in the Legal Division at (202) 898-7349, or Daniel M. Gautsch, an Examination Specialist in the Division of Supervision at (202) 898-6912.

Stanley J. Poling

Attachment: PDF Format (72 kb, PDF help or hard copy), HTML Format

Distribution: All Insured Banks and Savings Associations

Last Updated 07/16/1999

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