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4000 - Advisory Opinions

Deposit Insurance Afforded a Profit Sharing and Tax Deferral Plan


October 11, 1989

Claude A. Rollin, Attorney

Thank you for your letter of September 8, 1989 inquiring about the deposit insurance that would be afforded to the funds of a profit sharing and tax deferral plan held in a trust account by your institution.

As you probably know, the functions of the FSLIC were transferred to the FDIC under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (the "FIRRE Act"), which was enacted on August 9, 1989. With respect to deposits in savings and loan associations and other institutions that were insured by the FSLIC as of August 8, 1989, the FDIC will continue to follow the FSLIC's regulations and interpretations relating to deposit insurance coverage until uniform rules are promulgated by the FDIC which apply to deposits in both banks and savings and loan institutions. The FIRRE Act requires the FDIC to prescribe such uniform rules no later than May 5, 1990.

Under an FSLIC regulation, accounts comprised of funds of profit sharing and other trusteed employee benefit plans are treated as accounts established pursuant to irrevocable trusts (12 C.F.R. § 564.10). An FSLIC rule provides that insurance coverage of such funds can be up to $100,000 per beneficiary if the recordkeeping requirements of section 564.2 are met. 12 C.F.R. § 564.2. Under section 564.2, the books and records of an institution must disclose the existence of any fiduciary relationship (e.g. agent, nominee, trustee) that could provide a basis for insurance coverage in excess of $100,000. The details of the relationship(s) (such as names of principals and percentages of ownership) need only be maintained in good faith and in the ordinary course of business by the agent or accountholder. An example of proper disclosure of multi-level relationships in one account is: "X, agent for Y, trustee of ABC Trust." Use of agent's nominee name alone is not sufficient disclosure.

The interest of each beneficiary in an irrevocable trust account would be insured up to $100,000, separately from other accounts held by the trustee, the grantor, or the beneficiary (12 C.F.R. § 564.10). However, if a beneficiary has interests in more than one trust created by the same grantor, the interests of the beneficiary in all accounts established pursuant to such trusts would be added together and insured up to $100,000 in the aggregate. For example, if a company establishes both pension and profit sharing trust accounts for some of the same employees at the same savings institution, the interests of any one participant in the accounts of both plans would be added together and insured up to $100,000 in the aggregate.

In addition, each beneficiary's interest in a trust must be capable of determination as of the date of default in accordance with section 564.2(c)(1). 12 C.F.R. § 564.2(c)(1). Beneficiaries' interests in some trusts, including some employee benefit trusts, are not capable of determination. A trust interest is considered determinable if, under the terms of the trust documents, the beneficiary's ownership interest in the trust is determinable without consideration of any contingencies. Any indeterminable portions of a trust account are insured up to $100,000 as unascertainable trust estates. Finally, if the total assets of a plan exceed the interests of the participants in the plan's assets, the plan is overfunded. The overfunded amount would be insured up to $100,000 as an unascertainable trust estate pursuant to 12 C.F.R. § 564.2(c)(2).

In summary, this type of account would be insured on a per-participant basis so long as the above-noted recordkeeping requirements are satisfied. Therefore, it makes no difference whether your institution holds all of the trust funds in one $350,000 account or divides the funds into several different accounts.

I trust that this has been responsive to your inquiry. If you would like to discuss this further, please call me at (202) 898-3985.

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