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4000 - Advisory Opinions

Deposit Insurance for Certain "Bank Investment Contracts"


September 21, 1990

Roger A. Hood, Assistant General Counsel

Your letter of August 20, 1990, to Chairman Seidman has been referred to this office for response. ***

The matter you addressed in your letters involves *** "Unified Thrift Plan," which you indicate "has approximately $10 million in each of their affiliated banks in what is described by the plan as bank investment contracts' or BICs." You ask whether the BICs are considered to be unit investment trusts or annuity contracts for federal deposit insurance purposes. More fundamentally, however, you inquire whether each participant in "this Retirement Plan" is "covered up to $100,000 as compared to each BIC being covered only to a total of $100,000 per institution."

Your inquiry raises two principal issues. The first issue is whether a particular BIC is a "deposit" for purposes of deposit insurance coverage. If so, BIC funds are eligible for deposit insurance; if not, such insurance is not available. The second issue (which is relevant only if the BICs in question qualify as "deposits") concerns the specific nature of the *** Unified Thrift Plan. With the information you have provided, we cannot respond in detail to your inquiry, but we can give you some general information which you may find useful.

In general, a BIC is a "deposit," and therefore eligible for deposit insurance, if it has characteristics common to deposits and no characteristics inconsistent with it being viewed as a deposit. Each of the few BICs that have been examined in detail by the FDIC have had the following deposit characteristics: they were obligations incurred by a bank in the ordinary course of business; they were treated as deposits by the contracting parties; they had specified maturity dates; interest was to be credited periodically and at maturity; and (with certain limitations) all or part of the BIC funds could be withdrawn prior to maturity. In addition, none of the BICs had characteristics that were inconsistent with deposits. In each of these cases, we concluded that the BICs were deposits.

Assuming that the particular BICs referred to in your letters are deposits, the next issue your inquiry raises is what type of "plan" the *** Unified Thrift Plan is. The information you provided suggests that it might be some form of employee benefit plan, but that is not really clear. Nor is there sufficient information to determine whether the plan involves a unit investment trust or life insurance or annuity contracts. If it is a trusteed pension, profit-sharing, or stock bonus plan established by an employer or employee organization for the benefit of employees (the person in charge of the plan at your place of employment presumably would be able to tell you whether it is), you may wish to refer to the FDIC's deposit insurance regulations covering such plans, set out at 12 C.F.R. § 330.12 (published in the May 15, 1990, issue of the Federal Register, 55 Fed. Reg. 20111) for more information.

In general, under the FDIC's deposit insurance regulations, the non-contingent interest of each participant 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. (Employee health and welfare plans commonly do not satisfy this requirement because the contingency giving rise to benefits, e.g. illness, is not determinable without evaluation of contingencies other than those contemplated by the above-mentioned tables.)

Per-participant coverage is further subject to certain recordkeeping requirements regarding the fiduciary nature of the account and the allocable interest of each participant. Under these requirements, which are set out at 12 C.F.R. § 330.4, the deposit account records of the bank must disclose the fiduciary nature of the deposit by the trustee. In addition, the records of either the bank or the depositor, maintained in good faith and in the regular course of business, must show the allocable interest of each participant under the plan.

The foregoing response has necessarily been general, based on the limited information provided in your letters. However, I trust that it answers at least some of your questions, and reference to the deposit insurance regulations cited above (of which your bank should have copies) should give you further insights into the matter. After reviewing the regulations, if you still have questions you wish to bring to our attention, you might wish to provide additional information.

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