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Each depositor insured to at least $250,000 per insured bank

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4000 - Advisory Opinions


Insurance Coverage of Union Unemployment Relief Fund

FDIC-88-53

August 17, 1988

Patti C. Fox, Attorney

As we discussed in our telephone conversation of August 5th, I received a copy of your June 2, 1988 letter sent to our New York Regional Office regarding the deposit insurance coverage of the *** union Unemployment Relief Fund ("Fund"). You have asked whether each union member is entitled to separate insurance coverage for his interest in the Fund.

Union by-laws describe the purpose of the Fund as rendering financial assistance to union members who may become unemployed as a result of labor trouble. Each member is assessed $1,000 for the Fund. Section 14 of the by-laws states that "[t]his sum shall forever be the property of the member who has paid it. However, it shall be held in trust for him by the Union." Several conditions under which the funds will be returned are then explained: (a) a strike, lockout, or other labor trouble, (b) retirement or leaving the union after two years, or (c) death.

Generally, funds held in an irrevocable, express trust are insured to $100,000 for each beneficiary under FDIC regulations. However, Section 330.1(c)(1) requires that the interest in the trust be capable of determination without the evaluation of contingencies, except those covered by the present worth tables of the Federal Estate Tax Regulations. 12 C.F.R. § 330.1(c)(1). In other words, each beneficial interest must be a noncontingent interest, unless it can be valued by reference to life expectancy, except in the case of pension or profit-sharing plans. In that event, the trust interest of each participant is treated as though it had fully vested as of the date of the insured bank was closed. Id.

Of the three conditions set forth in the by-laws for payment of funds, the first relating to payment in the event of labor trouble is based upon a contingency, and the latter two are noncontingent. Nevertheless, it is not necessary to apply the valuation of trust interest rules, because each member retains a reversionary interest in the funds he has contributed.

Where a settlor and beneficiary are the same, his reversionary interest is treated as an individual interest and aggregated together with any other individually owned accounts in the same bank and insured to $100,000. 12 C.F.R. § 330.1(c)(4). Here, each union member contributes a specified sum to the Fund and is assured a return based on his contribution. (Any accrued interest is paid to two other union funds.) Since a union member is both a settlor and beneficiary, his interest in the Fund would be aggregated together with any other accounts held individually by him in the Bank and insured to $100,000. Any funds not attributable to the members would be aggregated and insured to $100,000.

Please be advised that the foregoing is a staff opinion and is not binding on the Corporation. I hope this has been of assistance to you. If you need further information, please let me know.


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