Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, May 10, 1993 TAG: 9305100005
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
But depositors who rely on the Federal Deposit Insurance Corp. for protection of their pension money may find themselves exposed to new risks as the government tightens rules on coverage.
The new rules are being phased in, starting last December, with some employee pension plans that affect workers indirectly.
Individuals will be affected directly for the first time with changes scheduled to take effect on Dec. 19.
Robert Taylor, vice president and assistant general counsel for First Union Taylor Corp. in Charlotte, N.C., said each type of pension account today is separately insured by the federal agency.
That means, for instance, that anyone with both an Individual Retirement Account and a Keogh plan from self-employment now enjoys $100,000 coverage on each account, in addition to protection for an individual certificate of deposit or other savings plan.
Starting Dec. 19, Taylor said, the government will combine coverage on all types of retirement accounts: IRAs and all kinds of self-directed retirement plans.
People will have an aggregate of $100,000 worth of FDIC coverage on the total in those types of plans, he said.
It means pension plans will become a separate category for federal insurance coverage.
FDIC protection applies to categories of accounts.
Thus, John or Jane Doe actually can receive up to $400,000 in coverage provided their money is in different types of accounts. For example:
John Doe could have $100,000 in government-backed insurance on his individual certificate or savings account.
John and Jane could have another $100,000 coverage on their joint account.
This second category is a joint account with a spouse or child. But this must be a true joint account owned equally by both parties, not an account that is payable to someone else at death.
John's irrevocable trusts could be insured for up to another $100,000.
The third category is irrevocable trust accounts, provided they are made irrevocable in writing.
And his pension plans could qualify for another $100,000 in coverage.
The change that went into effect last December applies to trustees who administer pooled employee pension plans.
Each person who is part of the plan has separate coverage up to $100,000 for his or her own account.
But now, Taylor said, that's true only if the trustee deposits the money in a bank that federal regulators consider well-capitalized. Otherwise, he said, the entire pension plan is covered only up to the $100,000 regardless of the number of workers in the pool.
That puts the burden on the trustee of such a plan to shop for a sound bank. The trustee cannot merely take the highest interest rate if it is offered by a shaky institution.
Taylor said any small business owner who has a plan for his employees must be very careful in choosing a bank for the plan. He advised such people to be very cautious in handing the pooled money.
Individuals must be equally aware of their deposit insurance coverage if they have more than $100,000 in a bank.
You cannot evade the rules with ploys such as reversing the names on two joint accounts, for instance.
Using another Social Security number won't help either. The FDIC covers the person rather than the account, and it pays no attention to the Social Security number.
Anyone with a business that is a sole proprietorship could get caught because the government would lump together the business and personal accounts.
The owner of a restaurant, for instance, might have a $100,000 certificate, $25,000 in savings, $2,000 in a personal checking account and another $25,000 in the business's checking account. Of that $152,000 total, only $100,000 would be insured.
The same trap awaits accounts that are held for the person's benefit by someone else, such as an agent, nominee, guardian, custodian or conservator. For deposit insurance purposes, the money would be lumped with the beneficiary's other accounts at the bank.
The coverage limit applies to all accounts in one institution. Using different branches, for instance, makes no difference. All of the accounts in one bank or thrift would be combined for purposes of coverage.
A depositor, however, can put money in the separately chartered banks of the same holding company in different states.
It is probably easier, however, to spread the money around to two or more banks.
Taylor said anyone with more than $100,000 looking for a safe haven should consider dividing the money and using separate institutions. People with that much money to deposit need to review terms of their FDIC coverage situations carefully, he said.
And anyone with that much money probably should also consider diversifying by putting some of the money in other types of investments.
by CNB