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4000 - Advisory Opinions

Insurance Coverage of Deposits Held in Connection with Pension and Other Trusteed Employee Benefit Plans


July 28, 1982

Joseph A. DiNuzzo, Attorney

This is in reply to your letter of April 23, 1982, in which you requested an opinion as to the insurance coverage of certain certificates of deposit held in connection with a private deferred compensation retirement program. According to your letter, the manager of the retirement program, ***, is a tax-exempt entity under section 501(c)(11) of the Internal Revenue Code.

For purposes of deposit insurance coverage, deposits held in connection with pension and other trusteed employee benefit plans are deemed to be trust funds. 12 CFR § 330.1(c)(1). As such, the interest of each beneficiary in the corresponding deposit account(s) is insured to $100,000, irrespective of the insurance provided with respect to any other account held by the beneficiary in the same FDIC-insured bank. In order for insurance to be provided per beneficiary, however, the interest of each beneficiary must be determinable and free from contingencies. When applicable, this separate insurance is afforded even when the funds of several participants are maintained in the same deposit account (e.g., a jumbo certificate of deposit).

In the recent past, the FDIC has had occasion to consider the deposit insurance coverage of certain deposits maintained in connection with the number of State-sponsored deferred compensation plans. Our conclusion has been that there deposits are not insured per particpant in the plan because, as required by section 457 of the Internal Revenue Code (26 U.S.C. § 457), the deposit accounts maintained in accordance with these plans constitute general assets of the State/employer and are, of statutory necessity, subject to claims of general creditors. The "interest or each participant in the deposit accounts, therefore, is not determinable and not free from contingencies; hence, insurance coverage per participant is not afforded with respect to these deposit accounts.

The section of the Internal Revenue Code dealing with private deferred compensation plans (26 U.S.C. § 451 note) is unclear as to the tax treatment afforded to employees who are participants in deferred compensation plans sponsored by a tax-exempt entity. It is suggested that you contact the Internal Revenue Service or consult with counsel as to this question. In the event that the requirements of section 457 of the Internal Revenue Code (dealing with state-sponsored deferred compensation plans) also apply to the plan managed by *** then the aforementioned certificates of deposit would not be insured per participant/employee. All the certificates of deposit held in connection with the plan in each FDIC-insured bank would be insured up to $100,000 in the aggregate. If, however, the *** Plan is such that the requirements of section 457 do not apply and each participant has a determinable, contingent-free interest in the deposit, then the deposit accounts in each FDIC-insured bank would be insured up to $100,000 per participant in the plan.

I realize that this matter is somewhat complex, ***. If you have any questions, feel free to phone me.

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