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4000 - Advisory Opinions

Deposit Insurance For Certain Retirement Plan "Bank Investment Contracts"


August 30, 1990

Martha L. Coulter, Senior Attorney

By letter dated June 15, 1990, you requested, on behalf of *** an opinion letter regarding deposit insurance coverage with respect to certain elements of the *** Retirement Savings Plan ("Plan"). This letter responds to that request.

According to the information provided with your letter, the Plan qualifies for tax-exemption as a profit-sharing plan under section 401(a) of the Internal Revenue Code and as a cash or deferred arrangement under section 401(k). You state that the trust through which the Plan is funded, and for which the trustee is *** ("Trustee"), is tax-exempt under section 501(a). Your information indicates that the trust's assets consist of employee contributions and matching employer contributions, together with the income and earnings thereon.

Your request focuses on two bank investment contracts ("BICs") in which you indicate a portion of the Plan's Fixed Income Fund is invested. You attached to your letter a copy of a Deposit Agreement for each BIC identifying the depositor as *** as trustee of the *** Retirement Savings Plan. One of the BICs, between the Trustee and *** *** states that the account it establishes is a money market deposit account as defined by Regulation D. The other BIC, between the Trustee and *** *** indicates that it establishes a time deposit as defined by Regulation D.

With respect to these BICs, you request the following opinions:

(1)  That each of the BICs qualifies as a deposit within the meaning of section 3(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(1);

(2)  That each participant's pro rata interest in each BIC is separately insured up to $100,000;

(3)  That FDIC insurance applies both to the principal amount and any accrued interest reflected in the participant's Plan account;

(4)  That the records of the Trustee and the Plan are sufficient to show the fiduciary nature of the deposit and details regarding the participants' beneficial interests; and

(5)  That the deposit insurance coverage applicable to the BIC funds is determined without regard to any individual deposits the participants might have in the same depository institution.

(6)  In addition, you requested an opinion that monies in the Plan trust fund held by the Trustee as cash for short periods of time are covered by FDIC insurance.

As to your first request, each of the BICs you have submitted for our review appears, based on the information you provided, to qualify as a deposit under section 3(1). Each reflects an obligation incurred by a bank in the ordinary course of business and has characteristics common to deposits. For example, it appears that each of the BICs is viewed as a deposit by the contracting parties; that each has a specified maturity date; that interest is to be credited periodically and at maturity; and, with certain limitations, that all or part of the deposited funds may be withdrawn prior to maturity. In addition, the BICs do not appear to have characteristics inconsistent with their being viewed as deposits. Based on these factors, it appears that each of the subject BICs is a "deposit" under section 3(1) and, accordingly, that they are eligible for federal deposit insurance coverage, as summarized below in response to your remaining requests.

Under the FDIC's deposit insurance regulations, the non-contingent interest of each participant/beneficiary in a deposit account held as an asset of a trusteed employee benefit plan is insured up to $100,000. This coverage is subject to the determinability of each participant's interest without evaluation of any contingencies except those addressed by the present-worth or life-expectancy tables published by the Internal Revenue Service. It is further subject to certain recordkeeping requirements regarding the fiduciary nature of the account and the allocable interest of each participant, as discussed below. In determining insurance coverage, each participant's interest would be deemed to be fully vested as of the date the insured institution was closed.

For purposes of deposit insurance coverage, the value of a participant's non-contingent interest in a defined contribution plan is deemed to be the balance in the participant's plan account (including both principal and accrued interest, if both are reflected in the participant's plan account balance) as of the date of default of the insured institution. No distinction is made for this purpose between contributions made by the employer and those made by the employee. For defined benefit plans, the value of an employee's non-contingent interest is deemed to be the present value of the employee's interest in the plan, evaluated in accordance with the method of calculation ordinarily used under such plan, as of the date of default.

The insurance coverage applicable to a participant's interests in employee benefit plans is separate from the coverage provided for other types of accounts maintained by the participant at the same institution. However, each participant's interest in a plan's deposit accounts at each insured institution is combined with that participant's interest in other employee benefit plans established by the same employer or employee organization at the same institution and insured up to $100,000 in the aggregate. (For example, funds representing a participant's interests in a pension plan and in a profit sharing plan established by the same employer would be aggregated for deposit insurance purposes.)

Deposit insurance with respect to any one institution would be calculated on the basis of each participant's pro rata interest in the entire plan (or, where the plan consists of discrete pools from which different types of investments are drawn, each participant's pro rata interest in the discrete pool, such as the Fixed Income Fund, from which deposits are made in insured institutions). Thus, assuming the participant's entire interest qualifies for deposit insurance as discussed above, his or her interest in the plan (or pool) funds in the trusteed plan accounts at any one insured institution would be proportionate to his or her interest in the plan (or pool) funds as a whole.

Your fourth request seeks an opinion that the records of the Trustee and Plan are sufficient to satisfy the recordkeeping requirements of the FDIC's deposit insurance regulations. Under these requirements, the deposit account records of the insured institution must expressly disclose the existence of any fiduciary relationship for such a relationship to be recognized by the FDIC in determining deposit insurance coverage. It appears that this requirement would be met by the existence of the Deposit Agreements, as provided with your letter, in the deposit account records of the depository institution, as these agreements disclose the trusteed nature of the account.

In addition, where the deposit account records of the institution disclose the existence of a relationship which might provide a basis for additional insurance, the details of the relationship and the interests of other parties in the account must be ascertainable either from those records or from records maintained by the depositor (or someone acting for the depositor) in good faith and in the regular course of business. With regard to this requirement, it would be quite difficult to predict precisely what documentation or detailed information might be needed by FDIC claims personnel in connection with any particular employee benefit plan. In general, however, it is expected that records typically maintained by a prudent plan trustee in order to ensure proper payment of benefits under the plan would provide a sufficient basis for meeting this requirement.

In response to your sixth request, funds held in an insured institution by that institution as trustee for an employee benefit plan (which funds are included within the definition of "deposit" in section 3(1)(2)) are covered under 12 C.F.R. 330.12 to the same extent as if the funds were deposited in another insured institution by the trustee in its fiduciary capacity.

I trust you will find this information responsive to your inquiry.

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