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4000 - Advisory Opinions

Deposit Insurance Coverage of Pension and Profit Sharing Plans


March 23, 1995

Christeena G. Naser, Senior Attorney

This letter is in reference to your inquiry of October 11, 1994 and our subsequent telephone conversation concerning the deposit insurance coverage of pension and profit sharing plans held by Trust "A", a Partnership which is the nominee name for your bank's Trust Department. I apologize for the delay in responding to your inquiry.

As I advised you by telephone, for deposit insurance to pass through to the individual employees covered by an employee benefit plan or an eligible 457 deferred compensation plan, the FDIC regulations at 12 C.F.R. § 330.12 must be satisfied. These rules specify that an employee's non-contingent interest in an employee benefit plan will be eligible for up to $100,000 of deposit insurance coverage so long as 1) the FDIC's recordkeeping requirements at 12 C.F.R. § 330.4 are satisfied and 2) as described more fully below, the depository institution in which the account is held is eligible to accept brokered deposits or satisfies an exception to that requirement.

Recordkeeping Requirements.--Section 330.4 requires that the deposit account records of the bank must disclose the existence of any relationship which might provide a basis for additional insurance (i.e., pass-through insurance). 12 C.F.R. § 330.4(b)(1). In addition, the interests of other parties (i.e., the employees) in the account must be ascertainable either from the bank's deposit account records or records "maintained, in good faith and in the regular course of business, by the depositor or some person or entity that has undertaken to maintain such records for the depositor". 12 C.F.R. § 330.4(b)(2). This means that the administrator of the plan, for example, must have records which specify the interest and amount of each employee who is a beneficiary of the plan. These would be the recordkeeping requirements that would apply if Bank "ABC", as Trustee for XYZ Employee Benefit Plan had established the account in its (Bank ABC's) name. However, I understand that the accounts are actually held in the name of Trust A, A Partnership which is a separate legal entity. Trust A in turn holds on behalf of the Bank ABC as Trustee for the employee benefit plan. In such case, the provisions of 12 C.F.R. § 330.4(b)(3) are applicable because this would be a multi-tiered fiduciary relationship.

The multi-tiered rules may be satisfied in two ways. First, the deposit account records of the bank where the account is held must indicate the existence of each level of fiduciary relationship (i.e., that Trust A holds on behalf of Bank ABC, as Trustee for XYZ Employee Benefit Plan) and the interests of everyone on whose behalf each party is acting (i.e., disclose the interest of the beneficiaries). 12 C.F.R. § 330.4(b)(3)(i). The second method would be to indicate in the depository bank's account records that Willtrust holds on behalf of Bank ABC which may be holding on behalf of others. Bank ABC's records would then disclose the trustee relationship and the interests of the beneficiaries. 12 C.F.R. § 330.4(b)(3)(ii).

Brokered Deposit Eligiblity.--With respect to the brokered deposit requirements, the bank in which the employee benefit plan funds are placed must, at the time of the deposit, be eligible to accept brokered deposits. In effect, this means that the bank must either be 1) well capitalized or 2) adequately capitalized and in receipt of a brokered deposit waiver from the FDIC. There is an exception to this requirement in that deposits in an adquately capitalized bank can be eligible for pass-through insurance if the depositor receives at the time of the deposit a written statement from the bank that the deposit is eligible for pass-through insurance. Congress imposed this requirement in an attempt to make employee benefit plan administrators monitor more carefully the health of the institutions in which they place funds. Thus it becomes the administrator's responsibility to ascertain the capital status of its depository institution. Many plans have entered into contractual provisions in this regard.

The FDIC has just adopted a final rule, effective July 1, 1995, requiring banks to notify employee benefit fund depositors within ten business days when a change in their capital status makes deposits ineligible for pass-through insurance. A copy of the rule is enclosed for your use.

I hope that the above information has been of assistance. Please feel free to call me if you have further questions or if the facts of your situation change.

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