[Federal Register: September 12, 2006 (Volume 71, Number 176)]
[Rules and Regulations]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 330
Deposit Insurance Regulations; Inflation Index; Certain Retirement Accounts and
Employee Benefit Plan Accounts
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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.
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
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
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
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
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
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
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.
\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)
The increased coverage of $250,000 for IRAs applies irrespective of
whether an IRA is ``self-directed,'' a subject more fully discussed
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 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
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.
\5\ 29 U.S.C. 1002(34).
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
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:
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
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,
[FR Doc. E6-15065 Filed 9-11-06; 8:45 am]
BILLING CODE 6714-01-P