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4000 - Advisory Opinions

Self-Funded Health and Life Insurance Trust Not Insured Per-Participant


April 19, 1989

Valerie J. Best, Attorney

Thank you for your recent letter concerning ***. *** is a non-profit association providing support services to its members. You write that *** offers health and life insurance benefits to the employees of participating stores. The monthly premiums for these policies are remitted by the member stores on behalf of its employees and deposited to an account at *** in the name of *** Benefit Trust. If *** dissolves, all funds would be distributed back to the participants. Otherwise, distributions will be made from the trust account to the participants as health and life benefit claims are filed. As participants leave the employment of the member store, their interest in the trust fund is forfeited. You ask if the *** Benefit Trust funds are insured from funds deposited by ***. You also ask if each participant's interest in the *** Benefit Trust is insured separately.

Based upon the information provided, the *** Benefit Trust funds are insured separately from funds deposited by ***. However, per participant coverage is not available as to the *** Benefit Trust funds.

With regard to the funds owned by ***, sections 330.5 and 330.6 of the FDIC rules and regulations (12 C.F.R. §§ 330.5 and 330.6) provide that the deposit accounts of a corporation, partnership, or unincorporated organization engaged in any independent activity are insured up to $100,000 in the aggregate. The term "independent activity" means any activity other than one directed solely at increasing insurance coverage.

As to the *** Benefit Trust funds, section 330.10 provides that a "trust interest" for a beneficiary deposited into an account established pursuant to a valid trust agreement shall be insured up to $100,000 with said insurance coverage being separate from that afforded deposit accounts of the trustee or any other deposit accounts of the beneficiary in the same bank. Section 330.1(c)(4) defines the term "trust interest" to mean an interest of a beneficiary in an irrevocable express trust created by trust instrument or statute.

A beneficiary's interest in an account established pursuant to an irrevocable express trust arrangement is insured separately from other beneficial interests deposited in the same account only if the value of the beneficiary's interest can be determined without evaluation of contingencies except for those covered by the present worth tables and rules of calculation for their use set forth in section 20.2031-7 of the Federal Estate Tax Regulations (26 C.F.R. § 20.2031-7). If any trust interests in such an account cannot be so determined, the insurance with respect to all such trust interests together shall not exceed the basic insured amount of $100,000.

In other words, each beneficial interest must be a noncontingent interest, unless it can be valued by reference to life expectancy. In the case of health, life, dental, or disability benefits, the trust interest of each participant is incapable of determination; a claim for benefits is contingent upon an event which may or may not occur.

In order to obtain insurance coverage for the *** Benefit Trust separate from insurance coverage of *** funds, certain recordkeeping requirements must be met. The bank's records must indicate that a trust relationship exists. 12 C.F.R. § 330.1(b)(1). In addition, the details of the relationship and the interests of other parties in the account must be ascertainable either from the records of the bank or the records of the depositor maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2). Please feel free to contact me at the above address if you have any questions.

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