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4000 - Advisory Opinions

Possibility of Calculable Reduction in Employee's Determinable Ownership Interest in a Certain Employee Welfare Benefit Plan Does Not Disqualify Funds for "Pass-Through" Insurance

FDIC-91-65 August 1, 1991 J. William Via, Jr., Counsel

This is in response to your letter of July 2, 1991 inquiring about insurance coverage for deposits by the trustees of an employee benefit trust under a plan that is funded by employer contributions and that appears, from your description, to be an "employee benefit plan" for purposes of 12 CFR § 330.12(f). The deposits will be placed in the United States branches of a foreign bank, which branches are insured by the FDIC; plan deposits in these several branches will be aggregated for insurance purposes. See 12 CFR § 330.3(d). It is assumed that the beneficiaries under this plan are not the beneficiaries of any other benefit plan established by the same organization that holds deposits in the same bank.

Generally speaking, the deposit insurance for deposits by an employee benefit plan runs to the participants in the plan. Thus, each participant's allocable (non-contingent) ownership interest in a deposit of plan funds may be insured for up to $100,000. This insurance coverage is in addition to and separate from the coverage provided for other types of accounts maintained in the same depository institution by the plan participant, plan sponsor, administrator or fiduciary. As intimated above, however, a participant's interests in all deposits in the same depository institution by benefit plans established by the same sponsor are added together and the aggregate is insured to $100,000. See 12 CFR § 330.12(a).

To qualify for pro rata, or "pass-through", deposit insurance coverage, the allocable ownership interests of the participants in the plan (see § 330.12(b)) must be determinable without the evaluation of contingencies, except for those covered by the present worth tables and rules of calculation for their use set forth in the Federal Estate Tax Regulations. See § 330.12(f)(3). As stated in section 330.12(b)(3), the interests of the participants need not be vested in order to be insured but will be treated as vested on the date the insured depository institution is closed.

Also, in order to qualify for "pass-through" deposit insurance, the deposit account records of the depository institution must disclose the nature of the relationship that may provide a basis for the additional insurance coverage, which in the case of an employee benefit plan entails clearly identifying the deposit as a trust or custodial account. In addition, records of either the bank or the depositor (or of an authorized third party) maintained in good faith and in the regular course of business must reveal the details of the relationship and the ownership interest in the account of each beneficiary under the plan. See 12 CFR § 330.4(b).

You summarize the plan benefits in this case as payments for supplementary unemployment compensation, disability, hospitalization, severence, and other assistance. Unlike employee pension, or retirement, benefit plans, employees typically have no allocable ownership interest in an employee welfare benefit plan, providing payments for such purposes as you describe, but only indeterminate potential claims, and such plans thus generally do not qualify for "pass-through" deposit insurance. However, this plan has additional, extraordinary features.

As we understand it, the amount contributed to the plan (plus earnings thereon, less allocable plan expenses) for the benefit of an employee, minus any benefit payments to the employee, yields the employee's individual account, an amount that can be readily determined when required. Moreover, the employee, or the employee's beneficiary or estate, will ultimately receive the entire amount contributed to the employee's individual account (plus earnings, less plan expenses). The only qualification to this proposition attends the case of an employee who withdraws from employment (without having become eligible for a pension from a related pension fund); in such case, the employee is entitled to the balance remaining in the individual account, but if the amount remaining exceeds twice his annual compensation during the year immediately preceding his last employment, such excess is forfeited to the general account of the plan fund, in effect, as a penalty for terminating employment prior to retirement. In my opinion, the possibility of a calculable reduction in a determinable ownership interest in this defined circumstance under the plan does not make that interest contingent, for purposes of section 330.12(a), (f)(3); thus, deposits of plan funds are eligible for "pass-through", or pro rata, deposit insurance.

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