FDIC limits change for retirement plans.

• Author: Miller, Becky
• Position: Federal Deposit Insurance Corp.

Final regulations under the Federal Deposit Insurance Corporation (FDIC) Improvement Act of 1991 were published on May 25, 1993. The rules described in these regulations may have some surprising consequences for retirement plans that invest in savings instruments of regulated financial entities.

In general, under prior law, retirement plan assets were provided with FDIC coverage, limited to $100,000 per plan participant. This legislation and the interpretations in the final regulations have made significant changes in those rules which may come as a surprise to many depositors and to some financial institutions.

"Passthrough" deposit insurance coverage

The general rule remains that insurance coverage is set at $100,000 per plan participant provided that the FDIC's record-keeping requirements are satisfied. For this purpose, "plan" includes qualified retirement plans under Sec. 401(a), including plans that cover owner-employees under Sec. 401(d); plans defined in Sec. 457; and funded welfare plans.

The inclusion of Sec. 457 plans for full "passthrough" insurance was established by the legislation. Previously, the Federal Savings and Loan Insurance Corporation (FSLIC) had provided coverage for these programs on a per participant basis, but the FDIC had only insured them on a per plan basis.

The eligibility of welfare plans for passthrough coverage is also new. However, to be insured on a per participant basis, the participant's interest must be ascertainable and not contingent. Thus, many welfare plans will not be able to obtain per participant coverage since there is no individual accounting performed.

The primary change in this area is the elimination of "passthrough" coverage for deposits in institutions not "adequately capitalized." When this rule appeared in the statute, two questions immediately arose: What is the definition of "adequately capitalized"? How is the investor to get this information? Happily, the regulations respond to both questions.

First, "adequately capitalized" will generally mean that the institution is allowed to accept brokered accounts. Institutions that have not yet gained FDIC approval to offer brokered accounts, but are "adequately capitalized," can qualify for "passthrough" coverage. The rules are set by the institution's controlling organization; this may be the Comptroller of the Currency, the Office of Thrift Supervision or the Board of Governors of the Federal Reserve System. Institutions that are...