FDIC REQUIRING NEW DISCLOSURES OF "PASS-THROUGH" DEPOSIT INSURANCE COVERAGE
FOR IMMEDIATE RELEASE
The FDIC Board of Directors today adopted new rules requiring insured
institutions to provide timely disclosures to depositors in certain
retirement accounts and employee benefit plans about whether their funds
qualify for "pass-through" insurance coverage. In general, "pass-through"
insurance means that the share of each participant in the account, rather
than the total account balance, is insured up to $100,000.
A 1991 law and FDIC regulations that went into effect in 1992 provide
for "pass-through" deposit insurance coverage for employee benefit plan
accounts if the insured institution satisfies certain capital standards.
However, the agency has received numerous comments from the public about the difficulty of obtaining timely information about capital levels and, thus, the availability of this form of insurance protection. The FDIC's new rules are intended to provide timely disclosures for depositors, without significantly adding to regulatory burdens for institutions.
Chairman Ricki Tigert Helfer said: "The FDIC's new disclosures are
important for helping depositors know if they are receiving the benefit of
'pass-through' insurance coverage. Even so, the insurance standards are
fairly complex and the disclosures may not be enough to remove the
uncertainties depositors may have. That is why we believe Congress should
consider simpler standards for 'pass-through' insurance coverage for employee benefit plan accounts, perhaps by using some yardstick other than
At issue are deposits in accounts such as 401(k) retirement accounts,
Keogh plan accounts, and corporate pension plan and profit-sharing plan
accounts. The new FDIC disclosures include requirements that:
Upon request from an administrator or manager of such an account, an
insured depository institution 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 the deposits are believed to 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 the
deposits are believed to be 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.
The new rules will not go into effect until July 1, 1995, to give
institutions time to establish policies and procedures for complying.
However, holders of employee benefit plan deposits made between December 19, 1992, and July 1, 1995, will receive specified disclosures if at the time of deposit the account was not eligible for "pass-through' insurance coverage.
As part of the same action, the FDIC agreed to technical amendments to
its deposit insurance regulations in three areas: joint accounts; accounts
where an insured institution is acting in a fiduciary capacity; and
commingled funds of a bankruptcy estate. These technical amendments will
take effect 30 days after they are published in the Federal Register.