Self Directed IRA

What is the deposit insurance coverage for pension plans and profit-sharing plans?

The general rule is that deposits belonging to pension plans and profit-sharing plans receive "pass-through insurance," meaning that each participant's ascertainable interest in a deposit-as opposed to the deposit as a whole-is insured up to $100,000.

In order for a pension or profit-sharing plan to receive pass-through insurance, the institution's deposit account records must specifically disclose the fact that the depositor (i.e., the plan itself or its trustee) holds the funds in a fiduciary capacity. In addition, the details of the fiduciary relationship between the plan and its participants, and the participants' beneficial interests in the account, must be ascertainable from the institution's deposit account records or from the records that the plan (or some person or entity that has agreed to maintain records for the plan) maintains in good faith and in the regular course of business.

The general rule applies to:

• Any deposit made by a pension or profit-sharing plan in any institution if the deposit was made before December 19, 1992.

• Any new deposit made by a plan on or after December 19, 1992, if the deposit is made in an institution that meets the FDIC's standards for "well-capitalized" institutions. Rollovers and renewed deposits are considered to be "new" deposits.

• Any new deposit made by a plan on or after December 19, 1992, if the deposit is made in an institution that meets the FDIC's standards for "adequately capitalized" institutions, but only if the institution also satisfies either one of the following conditions:

1. The institution has received a waiver from the FDIC to take "brokered deposits" - deposits that a depositor makes through an intermediary that is engaged in the business of placing funds for others; or
2. The institution notifies the plan in writing, at the time the plan makes the deposit, that such deposits are eligible for pass-through coverage.

In all other cases, any deposit that a plan makes on or after December 19, 1992, does not receive pass-through insurance, but rather is insured as a whole up to a total of $100,000.

If a deposit has pass-through insurance when it is made into an account, the deposit does not lose its pass-through insurance, even if the institution falls out of compliance with the standards for pass-through insurance. But once the institution falls out of compliance, any subsequent deposits that are made into that same account (including ones that are IRA rollover and renewals of earlier deposits) will not have pass-through insurance.