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4000 - Advisory Opinions

FDIC Insurance Coverage for Employee Benefit Plans


December 8, 1986

F. Douglas Birdzell, Special Counsel to the Deputy General Counsel

This is in response to your letter of October 1, 1986 inquiring about the FDIC insurance coverage provided for employee benefit plans.

Interests in such plans are deemed trust interests and insured accordingly under appropriate provisions of law and regulations. Generally speaking, the insurance coverage on either a pension or a profit-sharing plan runs to the participants in the plan itself. Thus, each participant's allocable interest is insured for up to $100,000.

However, to achieve this so-called "pass through" coverage certain conditions must be met.

The first condition is that the allocable interests of the participants must be determinable without evaluation of contingencies except for those contained in certain present worth tables in the Federal Estate Tax regulations. Thus, for example, while an employee pension or profit-sharing plan would normally have pass-through coverage, a health or accident plan would not because in the case of the health or accident plan, the contingency giving rise to benefits, i.e., illness or accident is not determinable without evaluation of contingencies other than those contemplated by the above-mentioned present worth tables.

The remaining criteria to be met are recordkeeping criteria. The records of the bank must disclose the nature of the plan as a profit-sharing or other trusteed employee-benefit plan. Finally, records of either the bank or the depositor maintained in good faith and in the regular course of business must show the allocable interest of each beneficiary under the trusteed plan.

Records maintained by a third party in some contractual or agency capacity with the depositor e.g., a plan administrator or actuary also will suffice. It should be mentioned here that the beneficial interests need not be vested in order to be insured. They will be treated as if vested in the event of the closing of an FDIC-insured bank.

Finally, although the question seldom arises, it should be noted that there is no "net-out" of beneficial interests for purposes of insurance coverage. Insurance coverage runs to each individual participant up to $100,000. It is not prorated or averaged among the plan participants. Further, only those deposits which are held in trust for the employees of a pension plan or other trusteed benefit plan would be entitled to "pass-through" insurance coverage. Any portion of a plan's deposited funds which are used for operation or other administrative expenses would not be insured under the provisions discussed above, but would be treated as funds of the settlor or trustee of the plan as the case may be, and would be separately insured along with other funds of the plan settlor or trustee in the same bank to $100,000 in the aggregate.

We cannot, of course, determine from the information submitted in your letter whether the *** benefit plan qualifies for "pass-through" deposit coverage. However, the information that we have provided should enable you to resolve that question.

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