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4000 - Advisory Opinions

Clarification of "Pass-Through" Insurance Prohibition Pertaining to Employee Benefit Plan Deposits Effective December 19, 1992


December 17, 1992

Alfred J. T. Byrne, General Counsel

This responds to your inquiries concerning "pass-through" federal deposit insurance coverage for self-directed defined contribution plan funds deposited in FDIC-insured depository institutions by a trust company acting as a trustee or co-trustee of the plans.

FDIC Legal Division staff has carefully considered the alternative theories outlined in your letters, copies of which are attached. As we informed you, we do not believe any of those theories provides a valid basis for continuation of "pass-through" insurance coverage with respect to the deposits in question after December 19, 1992. However, as discussed below, existing deposits may remain unaffected.

Clause (1)(D)(ii) of subsection 11(a) of the Federal Deposit Insurance Act ("FDI Act"), prohibits the FDIC, as of December 19, 1992, from providing "pass-through" or per-participant insurance coverage for certain employee benefit plan deposits in institutions which, at the time the deposits are accepted, may not accept brokered deposits pursuant to section 29 of the FDI Act. The prohibition does not apply if (a) the insured depository institution meets each applicable capital standard and (b) the depositor receives a written statement from the institution that such deposits are eligible for insurance coverage on a "pass-through" basis. FDI Act § 11(a)(1)(D)(iii).

Although to our knowledge no court has interpreted these statutory provisions, we are of the opinion that employee benefit plan funds on deposit with an insured depository institution at the time it becomes subject to the prohibition of clause (1)(D)(ii) (or, in the case of an institution that becomes subject to the prohibition on December 19, 1992, funds on deposit as of that date), will continue to be entitled to "pass-through" insurance coverage if the institution meets all recordkeeping and other requirements of the FDIC's existing regulations concerning employee benefit plan deposits. We reach this conclusion because, in our view, the prohibition applies only to employee benefit plan funds which are "accepted" after the relevant date.

Moreover, employee benefit plan funds deposited on or after December 20, 1992 would be entitled to "pass-through" coverage if, at the time of deposit, the institution may accept brokered deposits, or the deposits qualify for "pass-through" coverage pursuant to the exception in clause (1)(D)(iii). Conversely, if an institution becomes subject to the prohibition, funds withdrawn on or after that date would, in our opinion, effectively reduce the amount of insurance coverage by the aggregate amount of any such withdrawals.

You also asked whether an institution's brokered deposit waiver would continue in effect if it were the surviving institution of a merger with another insured depository institution. Although our brokered deposit regulations do not provide for the automatic invalidation of the waiver in such circumstances, if the resulting institution were to remain adequately capitalized, "[a]ny waiver [previously] granted may be revoked at any time by written notice to the institution." 12 C.F.R. § 337.6(C). Consequently, the FDIC could elect to revoke a waiver under the circumstances you describe.

In rendering the foregoing opinion, we have accepted that the facts are as you have represented them to us and have undertaken no independent investigation. For example, we have made no independent inquiry whether the employee benefit plan deposits meet FDIC recordkeeping requirements or whether each of the banks in question, respectively, meets its applicable capital standards.

In addition, insofar as the foregoing opinion may relate to pending rulemaking at the FDIC, we do not purport to address issues that will be considered in connection with any such rulemaking pursuant to the Administrative Procedure Act.

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