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4000 - Advisory Opinions

Deposit Insurance For Employee Benefit Plans


May 26, 1989

J. William Via, Jr., Counsel

This is in response to your questions arising out of my correspondence with your colleague *** concerning deposit insurance for employee benefit plans.

The unvested interest of a participant in an employee benefit plan (that qualifies for pass-through deposit insurance) is treated for insurance purposes as if it had fully vested on the date the insured bank failed. See 12 C.F.R. § 330.1(c)(1). Thus, if a participant has no vested interest under the terms of such a plan until completing five years of company service, that participant's interest in the plan would nonetheless be considered as vested for deposit insurance purposes. A participant's beneficial interest in a pension plan means the present value of his or her accrued benefit on the date the insured bank fails; this determination assumes no further service and does not attribute any value to future or contingent benefits.

If the assets of the plan exceed the total amount of the participants' beneficial interests in the plan, the excess, or overfunded portion, is insured to a maximum of $100,000, separately from the insurance accorded the beneficial interests of the participants. See 12 C.F.R. § 330.1(c)(2). To determine the insurance applicable to a particular deposit, divide each participant's beneficial interest in the plan by the total assets of the plan and multiply the amount of the deposit by the resulting percentage for each participant, which yields the beneficial interest of each in the deposit. For example, assume that a plan with assets of $1.5 million has three participants whose beneficial interests total $1 million: $750,000 for A (50%); $150,000 for B (10%); $100,000 for C (6.66%). The excess assets of $500,000 comprise 33.33% of the total assets. If the plan holds a deposit of $300,000, 50% of it, or $150,000, is owned by A, leaving $50,000 uninsured; the 10% interest of $30,000 owned by B and the 6.66% interest of $20,000 owned by C are each fully insured; the 33.33% interest of $100,000 representing the excess, or overfunded portion, is also fully insured in this case.

If a pension plan owns a deposit (whether or not commingled with deposits of others) the legal title to which is held for it by another entity, the recognition of such ownership for deposit insurance purposes requires, at the threshold, compliance by that entity with 12 C.F.R. § 330.1(b)(1) (as modified by 12 C.F.R. § 330.11), a subject discussed in my two letters to Mr. ***.

When an insured bank is closed for liquidation and a payoff of depositors is to be made, the FDIC notifies each depositor in writing at its address of record with the bank. This notification is mailed within a few days after the bank is closed. A depositor is allowed eighteen months from the date a receiver is appointed to file a claim for deposit insurance; a claim form is furnished and should be filed in accordance with the accompanying instructions. For further details on this point, you can contact our New York Regional Office, Division of Liquidation (704-1200).

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