FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Deposit Insurance Coverage of Employee Benefit Plans
August 16, 1995
Jeffrey M. Kopchik, Counsel
This is in response to your July 27th letter to Joseph A. DiNuzzo, Esq. You have asked the FDIC to confirm five "assumptions" delineated in your letter concerning the federal deposit insurance coverage afforded to employee benefit plan and irrevocable trust accounts maintained at insured depository institutions. Your assumptions and my responses are set forth below. Your assumptions are based on the premise that the deposit accounts in question are maintained at the same insured depository institution.
1. Employee vacation benefit plans are eligible for pass-through coverage as long as the employees' interest meets the FDIC definition of a non-contingent interest found at 12 CFR § 330.12(g)(3).
Your assumption is partially correct. Deposits of an employee benefit plan in an insured depository institution shall be insured on a "pass-through" basis for up to $100,000 per plan participant provided that (1) the recordkeeping requirements as outlined in § 330.4 of the FDIC's regulations are satisfied, (2) the noncontingent interest of each plan participant meets the definition of "noncontingent interest" found in § 330.12(g)(3) of the FDIC's regulations and (3) at the time the deposit is made, the institution is either eligible to accept brokered deposits or meets each applicable capital standard and has provided a written statement to the depositor indicating that the deposit is eligible for pass-through deposit insurance coverage.
2. Benefit plans established by the same employer in which all employees have a contingent interest, such as medical benefit plans, are aggregated and insured up to $100,000. This coverage is separate from that provided to other accounts of the employer and the employees.
This assumption is correct.
3. The grantor of a non-contingent irrevocable trust account has no interest in the trust. Rather, the beneficiaries are insured individually up to $100,000 based on their interest in the trust. Any other trusts established by the same grantor containing the same beneficiaries are aggregated.
Assuming that the additional trusts are irrevocable, this assumption is correct.
4. Contingent irrevocable trusts established by the same grantor are added and insured up to $100,000. This coverage is separate from insurance provided to other accounts the grantor holds.
Assuming that the beneficiaries of each trust are the same, your assumption is correct that the funds in each trust would be aggregated and insured to a maximum of $100,000, separate from any other accounts that the grantor might maintain in other capacities at the same insured depository institution.
5. Is it necessary to provide the trustees of an employee benefit plan periodic information regarding the depository institution's capital after the initial date of deposit? If so, how often?
Section 330.12(h) of the FDIC's regulations provides that (1) upon request, an insured depository institution shall disclose in writing to depositors of employee benefit plan funds its current Prompt Corrective Action ("PCA") capital category, its capital ratios and whether the employee benefit plan deposits would be eligible for pass-through insurance coverage, (2) upon opening an account comprised of employee benefit plan funds, an insured depository institution shall disclose in writing its PCA capital category, a description of the requirements for pass-through insurance coverage and whether, in the institution's judgment, the deposits are eligible for pass-through coverage and (3) when employee benefit plan deposits would no longer qualify for pass-through insurance, an insured depository institution shall disclose in writing to all existing employee benefit plan depositors within 10 days the institution's PCA capital category and that new, rolled-over or renewed employee benefit plan deposits will not be eligible for pass-through deposit insurance coverage.
I trust that you will find this letter to be helpful.