D'Amato Takes Aim at Retirement CD

WASHINGTON - Senate Banking Committee Chairman Alfonse M. D'Amato has introduced legislation that would strip federal deposit insurance coverage from the controversial Retirement CD.

"I remain extremely concerned about the threat this product could pose to the bank insurance fund," the New York lawmaker said on the Senate floor recently. "The fund must not be used as a safety net for untested and uncertain investment vehicles."

Retirement CDs resemble traditional tax-deferred annuities, but are insured by the Federal Deposit Insurance Corp.

The D'Amato bill would remove insurance coverage from any of the investment products underwritten by banks since last Oct. 6, the date that Sen. D'Amato co-sponsored a similar measure. That bill was not enacted.

"This effective date is justified, since both the industry and the regulators were put on notice of congressional concerns well before that time," Sen. D'Amato said.

Currently, only three banks offer the Retirement CD: Blackfeet National Bank in Browning, Mont., First National Bank of Santa Fe, N.M., and the National Bank of the Commonwealth in Indiana, Pa.

The depositor selects a maturity date on the Retirement CD, when up to two-thirds of the principal and interest may be withdrawn. The bank then pays out the balance in monthly installments over the rest of the customer's life.

Sen. Christopher J. Dodd, D-Conn., a co-sponsor of the D'Amato bill, said that depositors often do not realize that the monthly balance payments are not covered by the FDIC if a bank that sold the instrument fails.

"This is the case despite that fact that the promotional material claims to guarantee payments for life," Sen. Dodd said.

Karen Addis, spokeswoman for the American Council of Life Insurance, applauded the D'Amato bill.

"It is poor public policy for any lending institution to combine tax- deferral features and federal deposit insurance coverage into one product, because annuities have functioned well without the need for federal guarantees," Ms. Addis said.

Legislative sources gave the legislation good odds for enactment.

"As long as it is very strictly limited to the Retirement CD, this bill should not be especially controversial," said analyst Karen Shaw. However, the bill will most likely not pass as a free-standing measure, added Ms. Shaw, who is president of ISD/Shaw Inc.

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