SEC Money Market Reform - FDIC-Insured Demand Products

[Brian K]

I was watching a webinar yesterday about a demand deposit alternative offered to qualified plans. The speaker was asked whether this account, which is FDIC-insured, was available to all defined contribution plans, including 403(b) plans. The speaker answered in the affirmative.

I am under the impression a 403(b) cannot have this type of FDIC-Insured Demand Deposit Account as it is not an annuity or mutual fund.

Was the speaker incorrect?

This is relevant as our bank is introducing a FDIC-Insured Investment Account as a money market alternative for qualified plans. It is available for advisors, providers. TPAs, and sponsors of qualified plans, but we were under the assumption it was not available to 403(b)s.

Thank you.

[Peter Gulia]

Not having seen the webinar you mention, I don’t suggest a conclusion.

Your general premise is right: For most IRC § 403(b) plans and participants, there are only two kinds of investments allowed: a custodial account that holds shares of SEC-registered “mutual” funds, and an annuity contract.

A church plan may include retirement income accounts. A “grandfather” rule allows a life insurance contract if it was issued before September 24, 2007 and provides only incidental death-benefit protection. There are other transition rules concerning some State retirement systems’ investments. For more information, see my chapter 6 in 403(b) ANSWER BOOK, published by Wolters Kluwer Law & Business.

Despite the general premise, an insurer might design a variable annuity contract and its separate account to obtain deposit insurance coverage. See 12 C.F.R. § 330.8. As always, read carefully (at least) the contract, the prospectus, and the statement of additional information.

A bank, insurer, insurance agency, broker-dealer, or investment adviser should get its lawyers’ advice.