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4000 - Advisory Opinions

Deposit Insurance: Whether a Special Payroll Account Would Receive Pass-Through Coverage


August 5, 1994

Jeffrey M. Kopchik, Counsel

This is in response to your letter of July 11, 1994 and our previous telephone conversation concerning deposit insurance coverage of a special payroll account which ABC Corporation ("ABC") is considering establishing at an insured bank. It is my understanding that ABC is a corporation which was formed by a group of employers in the area who are engaged in maritime cargo handling. Pursuant to collective bargaining agreements, each of these employers makes contributions on behalf of its employees to a trust which has been established for the employees' benefit. The trustees apportion the employer contributions among a pension fund, health fund and a vacation fund.

ABC has prepared payrolls for the employers since 1954. ABC would like to expand its activities by preparing, as agent for the trust, the monthly retirement checks which are sent to retired employees. It is anticipated that the trust will transfer funds on a monthly basis from its account to an account established by ABC at an insured bank in its corporate name. The monthly retirement checks will be paid from this account. You have inquired whether ABC's special payroll account would be afforded pass-through deposit insurance coverage so that each employee's interest in the account will be separately insured for up to $100,000.

Your letter is correct that section 330.12(a) of the FDIC's rules and regulations provides that employee benefit plan deposits in an insured depository institution are generally insured on a pass-through basis up to $100,000 for the interest of each beneficiary, provided that the FDIC's recordkeeping requirements delineated in section 330.4 of its regulations are satisfied. However, section 330.12(b) of the regulations provides that such pass-through coverage is not available if, at the time the deposit was accepted, the institution could not accept brokered deposits pursuant to section 29 of the Federal Deposit Insurance Act, unless (at the time the deposit is accepted) the institution meets each applicable capital standard and the depositor receives a written notice from the institution indicating that such deposits are eligible for pass-through insurance coverage.

Assuming that the accounts maintained by the trust at several insured depository institutions are properly titled to expressly disclose, by way of specific references, the existence of a fiduciary relationship and either the records of the insured depository institution or the trust kept in good faith and in the normal course of business permit the ascertainment of the interest of each beneficiary, these accounts will be afforded pass-through coverage. However, your letter states that ABC's special payroll account, which will receive transfers of funds on a monthly basis from the trust's accounts, will be established in the corporation's name. That being the case, in the absence of any indication in the institution's account records that ABC is holding these funds in a fiduciary capacity, the special payroll account would be insured up to a maximum of $100,000 without the benefit of pass-through coverage. In order for ABC's special payroll account to be afforded pass-through deposit insurance coverage, (1) the deposit account records of the insured depository institution, in this case the bank, must expressly indicate that ABC is acting in a fiduciary capacity on behalf of an entity that is, in turn, acting in a fiduciary capacity for others and (2) records maintained in good faith and in the normal course of business by ABC and the trust must disclose the name(s) and interest(s) of the person(s) on whose behalf the party at that level is acting.

It is somewhat unclear from your letter whether the special payroll account will contain other types of funds in addition to pension funds transferred by the trust. You may want to contact the United States Department of Labor concerning the permissibility of such commingling.

I trust that this letter is responsive to your inquiry.

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