WASHINGTON -- Investment products like the Retirement CD would be denied federal deposit insurance coverage under legislation introduced last week by key Senate Banking Committee members.
The Bank Insurance Fund and Depositor Protection Act of 1994, co-sponsored by Sen. Christopher Dodd, D-Conn., and the committee's ranking Republican, Alfonse D'Amato, R-N.Y., aims to stymie the use of the Retirement CD, a tax-deferred, federally insured deposit account.
"This is like a roll of the dice with Uncle Sam's implicit backing," said Sen. D'Amato. "Our legislation would provide necessary guidance to the banking regulators, and protect the Bank Insurance Fund from potential unquantifiable losses that could be incurred as a result of this new product."
Rep. John D. Dingell, D-Mich., introduced legislation in the House last month with a similar goal but different means. That bill would extend state insurance laws to banks offering the Retirement CD.
The two bills are a reaction to actions by banking regulators, who approved the annuitylike product last summer for Blackfeet National Bank, a $12 million-asset institution in Browning, Mont.
The insurance industry, which sees the product as an unfair competitor in the annuity market, has been pushing for congressional action to put an end to the Retirement CD.
Richard Schweiker, president of the American Council of Life Insurance, said that the bill introduced by Sens. Dodd and D'Amato "would restore fairness to the annuity markets.
"It is poor public policy to combine tax-deferral features and federal deposit insurance coverage in one product," Mr. Schweiker said.
A minimum deposit of $5,000 is required for Blackfeet's Retirement CD. Interest income is not taxed as it accumulates.
At a maturity date selected by the depositor, up to two-thirds of the principal and interest may be withdrawn.
The customer then receives the balance in monthly installments for as long as he or she lives.