FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Pass-Through Coverage: Applicability to Deposits Made From Funds in "Separate Accounts" Set Up By a Life Insurance Affiliate
August 25, 1994
Walter P. Doyle, Counsel
Thank you for your recent letter inquiring whether, under a group annuity contract issued by an affiliated life insurance company, an employer may provide a profit sharing plan that would be insured by FDIC on a pass-through basis as to each participating employee's interest in any deposits made at an insured institution out of "separate accounts" set up by the life insurance affiliate under § 506.2 of title 40 of Pennsylvania Statutes.
In § 506.2(a)(5) it is stated that such accounts are owned by the life insurance company, which may not represent itself to be a trustee in respect thereof. It is assumed that this provision likewise rules out such accounts being held in some other fiduciary capacity such as agent or custodian. Accordingly, your letter seeks our views as to whether § 330.6(f) of our regulation would afford pass-through coverage for such deposits.
My opinion is that § 330.6(f) is not applicable for several reasons. First, as your letter points out, § 330.6(f) applies only to funds held "for the sole purpose of funding life insurance or annuity contracts and any benefits incidental to such contracts." In this case, an individual participant is not an annuitant unless an annuity is elected upon termination of employment as the desired form of distribution--and at that point the annuitant would no longer have any interest in the profit sharing plan. It would indeed appear that any annuity in question is an incidental feature of the Plan's benefits, rather than the benefits being incidental to the annuity feature. In other words, the annuity aspect of the profit sharing plan seems to be the tail, not the dog, and the § 330.6(f) requirement that the sole purpose be to fund annuities or life insurance is not met.
The proposal also does not appear to satisfy the requirements in § 330.6(f)(2) and (3). Notwithstanding the arguments made in your letter, I am not aware of any Pennsylvania statutory provision that clearly precludes access to separate account assets to satisfy creditor claims in an insolvency or liquidation context, as required by § 330.6(f)(3). In fact, § 506.2(a)(5) of Pennsylvania insurance law does not even seem to totally preclude such access even while the insurance company is a going concern, since it applies only to "that portion of the assets of any such separate account equal to the reserves and other contract liabilities with respect to such account." This does not appear to be a complete bar to charging such accounts with liabilities arising out of other company business to the extent the separate account may actually exceed required reserves and contract liabilities.
For the foregoing reasons, it is my opinion that § 330.6(f) would not apply to your proposed arrangement and that pass-through coverage would not cover deposits made from funds in such separate accounts.
Please let us know if we can be of further assistance.