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4000 - Advisory Opinions

FDIC Computation of Insurance on Deposit Belonging to a Trust


April 13, 1988

Jules Bernard, Senior Attorney

In your letter of March 8, 1988, you ask how the FDIC computes insurance on a section 401(k) pension plan.

Generally speaking, a deposit belonging to a trust is insured in an amount equal to the sum of the values of all "trust interests" in the deposit, provided that no trust interest may be given a value exceeding $100,000. The term "trust interest" means the interest of a beneficiary, but does not include any interest retained by the settlor. (The interest that is retained by the settlor is regarded as a deposit that belongs to the settlor individually, and is insured to $100,000 separately from all the trust interests.)

Trust interests are not pro-rated or averaged for purposes of insurance coverage. The value of each trust interest is computed separately from the other trust interests.

This "pass-through" coverage is only available if the allocable interests of the participants can be determined without evaluation of contingencies, other than the contingencies covered by the present-worth tables set forth in the Federal Estate Tax regulations (which have to do with longevity). A trusteed pension or profit-sharing plan would normally have pass-through coverage, because the the value of each participant's interest is determined by the participant's current age and expected lifespan.

"Pass-through" coverage is only available when the bank's records disclose the fact that the deposit belongs to a trust. In addition, each beneficiary's allocable interest under the trust must be ascertainable from the bank's records or from the records of the trust itself maintained in good faith and in the regular course of business. Records maintained by a third party in some contractual or agency capacity with the trust-- e.g., an administrator or actuary--will satisfy this requirement.

When a profit-sharing or other trusteed employee-benefit plan holds a deposit in a closed insured bank, the FDIC computes insurance on the deposit as follows:

1. The FDIC establishes the present value of each participant's beneficial interest in the plan. All beneficial interests are treated as vested for this purpose.

2. The FDIC divides the assets of the plan by the present value of each participant's beneficial interest. The result of each such calculation is a fraction; the fraction represents each participant's beneficial share of the plan's total assets.

3. The FDIC multiplies the deposit by the fraction so computed for each participant. The resulting amount is considered to be that participant's beneficial interest in the deposit.

4. The FDIC limits the value of each participant's beneficial interest in the deposit to a maximum of $100,000. This is the insurable portion of each beneficial interest in the deposit.

5. Finally, the FDIC adds together the values of the insurable portions of all beneficial interests in the deposit. The FDIC pays insurance to the plan in this amount.

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