FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Insurance Coverage of IRAs and Keogh Accounts
January 27, 1982
Robert E. Feldman, Attorney
The purpose of this memorandum is to provide guidelines to our Regional Counsel about various issues involving insurance coverage of deposits held in connection with Individual Retirement Accounts and Keogh Accounts. In essence, I am putting into writing the thoughts had at discussions with you, Joe DiNuzzo, and me.
Prior to 1978, insurance coverage of IRA and Keogh deposits was governed by the same general principles that controlled deposit insurance of trust accounts. The Financial Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. 95-630, 92 Stat. 3641 (codified in scattered sections of 12 U.S.C.), removed IRAs and Keoghs from the general "rights and capacities" language found in section 3(m) of the FDI Act. 12 U.S.C. § 1813(m) (1976 & Supp. II 1978, Supp. IV 1980); see id. § 1821(a)(3). Section 11(a)(3) of the FDI Act now provides that IRAs and Keoghs "shall be insured in the amount of $100,000 per account." Id. § 1821(a)(3). Seven specific questions concerning post-FIRIRCA insurance coverage of IRAs and Keoghs have recently arisen.
(1) What are the federal deposit insurance implications when a depositor has an IRA and that depositor is also covered as an employee under a Keogh plan established by his or her employer (owner-employee under the language of I.R.C. § 401(d)) and held in the same bank as the IRA?
FIRIRCA established a separate deposit insurance category for IRAs and Keoghs, thereby removing those types of accounts from the "general rights and capacities" language used to govern other trust accounts. In answering the above question, however, one must return to the general principles of deposit insurance coverage and determine the "rights and capacities" in which IRAs and Keoghs covering the same depositor in the same bank are held. This resort to general principles is necessary because FIRIRCA itself, its legislation history, and regulations promulgated under it are all silent on the matter of both an IRA and a Keogh covering the same depositor in the same bank.
In the situation posed by question No. 1, the IRA and the Keogh would each receive separate insurance coverage because the employee, while both the settlor and the beneficiary of the IRA, is the beneficiary, but not the settlor of the Keogh. Thus, the two accounts are held in separate "rights and capacities."
(2) If a depositor, who has an IRA, is an employer (owner-employee) who has set up a Keogh in the same bank as the IRA, may he or she receive separate insurance for both the IRA and the Keogh funds?
In the above instance, the employer is the settlor and beneficiary of both accounts, and the insurance coverage is therefore aggregated.
(3) Given the peculiar language of 12 U.S.C. § 1821(a)(3), is the insurance afforded to IRA/Keogh deposits subject to the general principles of federal deposit insurances; i.e. is there aggregation of IRA/Keogh deposit amounts in the same institution and non-aggregration of these deposits maintained in different institutions?
Although the language of 12 U.S.C. § 1821(a)(3) is somewhat ambiguous, neither the language itself nor the legislative history of the subsection reveals any intent to depart from the general principal that accounts may be aggregrated for insurance coverage purposes, when the circumstance require, only if they are held in the same institution. The ambiguity in the subsection is derived from language stating that the IRAs and Keoghs are insured up to "$100,000 per account." The term "per account" is, in turn, defined as "the present vested and ascertainable interest of each beneficiary under the plan . . ." (emphasis added). Because an IRA or Keogh "plan" may include time or savings deposits in several banks, the question arises as to whether the above-quoted language calls for aggregration of deposits made under, e.g., a single IRA even though the deposits are held in different institutions. The subsection does not call for aggregration of deposits held at different banks. Further language in the subsection refers to insurance coverage for "time and savings deposits in an insured bank . . ." The use of the term "an insured bank" signifies that there is no inter-institutional aggregation for IRAs and Keoghs.
(4) How are demand deposits held under IRAs or Keoghs to be treated? As a practical matter, IRA or Keogh funds would rarely be held as demand deposits. IRA or Keogh funds would become demand deposits, for example, upon the maturity of a certificate of deposit.
The language of 12 U.S.C. § 1821(a)(3) is plain in qualifying IRA and Keogh time and savings deposits for separate insurance while excluding demand deposits from separate insurance. Thus, IRA or Keogh demand deposits would fall under the general trust account principles enumerated in 12 C.F.R. § 330.10 (1981); such a deposit would be aggregrated with all other trust accounts (except for IRA and Keogh time and savings deposits) held in the same "rights and capacities." In this regard, we noted that Answer 18 of "Your Insured Deposit,"  1 FDIC Rep. (P-H) 2359, is misleading in stating that IRA and Keogh funds held in demand deposits "are separately insured to the maximum of $100,000." Such would be the case only if no other funds in the institution holding the demand deposits were held in the same rights and capacities as the demand deposits.
(5) What are the deposit insurance consequences when an employee, who is not an owner-employee, covered by a Keogh contributes to the Keogh, and the employee maintains an IRA in the same bank?
In the past, FDIC has stated that employees who contribute to pension funds set up by their employers are not considered settlors for deposit insurance purposes. This same principle carries over to Keogh plans. Thus, the IRA and Keogh mentioned in the above question would not be held in the same rights and capacities because the employee is not considered to be a settlor.
(6) If an employer (owner-employee) establishes both an IRA and a Keogh for the benefit of an employee, is there separate insurance?
Under certain circumstances, an employer who already has established a Keogh plan for his employees may simultaneously elect to sponsor an IRA plan for them as well. The employer must submit a written trust agreement to IRS. In essence such an employer sets up a master plan to be adopted by the individual employees. The master plan provides a framework for the employees to set up their IRAs if they choose to adopt the plan. Their employer would then withhold a designated portion of the employees' wages and forward them to the IRAs an behalf of the employees.
Such employer-sponsored IRAs are therefore much the same as IRAs established directly by the employees and would be separately insured to the same extent as provided in answer to question number 1.
(7) Under certain circumstances, a bank acting as a fiduciary under an IRA or Keogh may choose to deposit IRA or Keogh funds in another department of the fiduciary bank or in another bank; in the event the bank closed, what are the deposit insurance implications?
Subpart 331.1(d) of the FDIC rules and regulations governs the above situation. Part 331 provides rules for determining insurance coverage of a fiduciary bank that has deposited trust funds in another of its departments or in another bank. In the ordinary case, it provides a formula for calculating the interest of each beneficiary in a trust estate in the event trust funds are commingled. The figure derived is then added to allocated trust funds, and the total is insured up to $100,000. Subpart 331.1(d) supplies an exception to the general rules of Part 331 in order to conform to section 11(a)(3) of the FDI Act. Under subpart 331.1(d), IRA and Keogh time and savings deposits are separately insured with respect to each beneficiary of an IRA or Keogh. IRA and Keogh funds are thus not aggregrated with other trust funds deposited by a fiduciary bank in a different department of the fiduciary bank or in another institution.
IRA and Keogh funds may be commingled; however, it is unclear whether Part 331 provides a formula for determining each beneficiary's interest in a deposit of commingled IRA or Keogh funds as it does for ordinary trust funds.