FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Deferred Compensation (457 Plan) Deposits are Insured Differently by FDIC and FSLIC
February 15, 1989
Claude A. Rollin, Attorney
This is in response to your letter, dated February 7, 1989, inquiring about the deposit insurance that would be afforded to certain accounts maintained by a deferred compensation plan at a savings and loan association. You ask whether the deposit insurance afforded such accounts will remain the same "with FDIC taking over FSLIC".
As a preliminary matter, you should be advised that there has not been a merger between the FDIC and the FSLIC as of this date. Although President Bush has proposed such a merger, until legislation has been considered and adopted by Congress, a merger cannot be effectuated. No such legislation has been considered or adopted by Congress as of yet. Therefore, the deposit insurance for all deposits in savings and loan institutions which are currently insured by the FSLIC will continue to be determined by FSLIC deposit insurance rules.
The correspondence enclosed with your letter does not expressly indicate whether or not the State of Texas Deferred Compensation Plan is an employee benefit plan which qualifies under section 457 of the Internal Revenue Code ("IRC"), 26 U.S.C. § 457 (a "457 Plan''). The correspondence does imply, however, that the Texas Deferred Compensation Plan is a qualifying 457 Plan and I must therefore assume, for the purposes of this letter, that it is such a plan.
The FDIC has taken the position that deposit accounts established pursuant to a state's 457 plan are not entitled to insurance coverage on a per-participant basis. The basis for our opinion is that the funds of such plans are required, by section 457 of the IRC, to "remain (until made available to the participant or other beneficiary) solely the property and rights of the state. . ." 26 U.S.C. § 457(b)(6). Since the state, rather than the employees, is deemed to be the sole owner of the funds until they are distributed, deposits of those funds cannot be insured on a per-participant basis. The employee-participant simply does not have any ownership interest in the funds upon which insurance coverage could be based. Since the funds deposited pursuant to a 457 Plan belong to the state, those funds would be combined, for insurance purposes, with any other deposits of a like kind ( i.e., demand deposits or time and savings deposits, as the case may be) maintained by the state at the same FDIC-insured bank.
It is my understanding that the FSLIC takes an entirely different position with regard to the insurance coverage afforded to 457 Plan deposits at FSLIC-insured institutions. FSLIC regulations provide, in relevant part, that ". . .all trust estates as defined in § 561.4(b) of this subchapter shall be added together and insured separately up to an additional $100,000". 12 C.F.R. § 564.10. The term "trust estate'' is defined to include "the interest of a participant in a deferred compensation plan, which plan shall be considered a trust for purposes of applying § 564.10 of this subchapter. 12 C.F.R. § 561.4. I have been informed that the staff of the FSLIC has interpreted these provisions to mean that the interest of each 457 Plan participant in the deposits of the plan will be insured up to $100,000.
Therefore, it appears that there is difference in the manner in which the FDIC and the FSLIC insure deposits of 457 Plans. Since your letter inquires about accounts maintained at FSLIC-insured savings and loan institutions, the FSLIC rules (described above) would apply if one of those institutions failed today. If there is a merger between the FDIC and the FSLIC, the deposit insurance afforded to 457 Plan deposits at savings and loan institutions may or may not be altered. Unfortunately, I am unable to provide you with a more definitive answer since there is no way to reasonably predict the actions that Congress may take with respect to the proposed merger.