81-2

May 14, 1981
Re: Government Code Section 53652

Dear Mr. _________:
This is in reference to your letters of October 15, November 13, November 20, 1980, and January 21, 1981.
As we understand the situation, the _________ (“_________”) has received funds pursuant to a written agreement with the employees of the _________ to defer a portion of the compensation otherwise receivable by the employees of the _________. The _________, pursuant to the plan, invested and deposited over $100,000 of these funds in a non-negotiable certificate of deposit in a federal savings and loan association. The _________ has not entered into a trust agreement or arrangement with its employees to defer a portion of such compensation, and the _________ has not designated on its books the amount of such deferred compensation funds of each employee pursuant to such a trust arrangement, and the _________ does not hold the Certificate of Deposit as a trustee under such a trust arrangement.
Your question is whether the federal savings and loan association, pursuant to Government Code Section 53652, is required to secure that portion of the non-negotiable certificate of deposit over and above the amount that is insured by the Federal Savings and Loan Insurance Corporation (FSLIC).
In accordance with Government Code Section 53635, Article 2, Chapter 4, Part 1, Division 2 of Title 5 of the Government Code governs the deposit of all money belonging to or in the custody of a local agency in a bank or savings and loan association. Since deferred compensation funds are in the custody of a local agency, namely the _________, it follows that the deposit of such funds with a federal savings and loan association are in accordance with the provisions of Article 2. Accordingly, Government Code Section 53652 requires the collateralization of such funds.
According to Government Code Section 53553, the treasurer of the local agency may waive security for such portion of any deposits that are insured pursuant to federal law. Therefore, though the treasurer may waive security for the amounts insured by FSLIC, it would appear that any amounts not insured by FSLIC or amounts not waived by the treasurer pursuant to Section 53653 must be secured according to the requirements of Section 53652.
We note that Government Code Section 53635(h) allows an exception to the collateralization requirements of Section 53652 for negotiable certificates of deposits issued by a federal savings and loan. However, since the certificate of deposit that is the subject of this letter is non-negotiable, this subsection does not apply.
We also note that if a trust agreement or arrangement had been entered into with the employee as described above, the individual employee amounts would be insured on a one-to-one basis up to the maximum limits. However, since there is no such trust agreement or arrangement, the funds are aggregated for purposes of FSLIC insurance.

We trust that the information we have supplied has answered your inquiry. If you should have any further questions in regard to this matter, please do not hesitate to contact us.
Very truly yours,
RICHARD M. DOMINGUEZ
Administrator of Local Agency Security
By:
LOREN P. HANSEN
Counsel
LPR:jg
cc: Administrator of Local Agency, S.F.
Administrator of Local Agency, Sacto.