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4000 - Advisory Opinions

Insurance Coverage of Individual Interests in a Welfare Trust


December 2, 1987

Roger A. Hood, Assistant General Counsel

This is in response to your letter of June 25, 1987 inquiring about deposit insurance coverage for deposits by the trustees of the ***, a welfare trust established and funded by a multi-employer group for the benefit of employee-participants. You ask, in particular, if the interest of each participant in deposits by the plan will be separately insured.

Generally speaking, the deposit insurance coverage for deposits by a qualified employee benefit plan runs to the participants in the plan, based on their respective ownership interests. Thus, each participant's allocable ownership interest in a deposit of plan funds may be insured for up to $100,000 (which is in addition to the $100,000 coverage that is provided the employee-participant for deposits owned in the same bank in his or her right and capacity as an individual). However, a participant's interests in all deposits in the same bank by benefit plans established by the same employer are added together and the aggregate is insured to $100,000.

To qualify for pro rata, or "pass-through," deposit insurance coverage, the allocable ownership interests of the participants in the plan must be determinable without the evaluation of contingencies, except for those covered by the present worth tables and rules of calculation for their use as set forth in the Federal Estate Tax Regulations. See 12 C.F.R. § 330.1(c). The interests of the participants need not be vested in order to be insured, but will be treated as vested on the date the insured depository bank is closed. The interest of a participant in a deposit is assumed to be that amount that is proportionate to the participant's interest in the entire assets of the plan.

Also, in order to qualify for "pass-through" deposit insurance, the records of the depository bank must disclose the nature of the relationship that may provide a basis for the additional insurance coverage, which in the case of a deposit by the trustees of an employee benefit plan entails identifying the deposit as such. Recording the title of the benefit plan and the name(s) of the trustee(s), so identified, holding the account will suffice. In addition, records of either the bank or the depositor maintained in good faith and in the regular course of business must reveal the allocable ownership interest in the account of each participant under the plan. See 12 C.F.R. § 330.1(b). The FDIC does not require that a copy of the trust instrument be filed with, or that the information recounted in your letter (page 4) be furnished to, the depository bank, although a bank may have its own requirements, of course.

You summarize the plan benefits in this case as supplemental unemployment, workers' compensation, disability, economic assistance, vacation, death and college tuition benefits. Unlike employee pension, or retirement, benefit plans, employees typically have no allocable ownership interests in an employee welfare benefit plan, as required by 12 C.F.R. § 330.1(c), but only indeterminate potential claims, and such plans thus generally do not qualify for "pass-through" deposit insurance. This requirement is not fulfilled by putting a maximum limit on plan benefits when the amount an employee will actually receive remains indeterminate and subject to future contingencies, nor is it fulfilled by the provision that an employee might (at the discretion of the trustees) receive a determinable amount upon termination of the plan, itself a contingent event.

As we understand it, the amount contributed to the plan (plus earnings thereon) by an employer for the benefit of an employee, net of benefits paid to the employee (if any), remains in the plan if the employee leaves the job (although some or all of it may be paid to the employee as unemployment benefits following the termination), and this residual will ultimately be paid to the employee's beneficiary or estate as a death benefit under the plan, subject to the contingency of the re-employment of the former employee and the use by him or her of some or all of these funds in the form of plan benefits. If an employee retires, he or she may or may not use some or all of the permissible plan benefits during retirement, and may or may not, therefore, leave an amount to be paid as a death benefit to his or her beneficiary or estate. In all events, however, the employee, or the employee's beneficiary or estate, will ultimately receive the amount contributed to the plan (plus earnings thereon) on his or her behalf by the employer. In my opinion, in these circumstances, this amount constitutes the employee-participant's interest in the plan, and it meets "determination" requirement of 12 C.F.R. § 330.1(c); thus, deposits of plan funds are eligible for pro rata, or "pass-through'', deposit insurance.

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