Aug. 7, 1996 – The Dept. of Labor issues Advisory Opinion 96-15a, addressing whether a trust company which is a wholly-owned subsidiary of a registered investment adviser is a “bank or trust company” for purposes of ERISA section 408(b)(8), and a bank for purposes of PTE 91-38, and 29 CFR 2510.3-101(h)(ii). In this Advisory Opinion, the DOL finds that it is.
The Scudder Trust Company was a wholly-owned subsidiary of Scudder, Stevens & Clark, Inc., a registered investment adviser under the Investment Company Act of 1940. Scudder Trust served as discretionary trustee and 3(21) fiduciary for the assets of various employee benefits plans subject to Title I of ERISA. Scudder Trust hired Scudder, Stevens & Clark to manage or supervise the assets of those plans.
Scudder Trust, pursuant to a New Hampshire state statute, established several investment trusts designed to seek particular investment objectives. The investment trusts commingled the assets of eligible investors, including ERISA-covered plans, with substantially similar investment objectives into pooled investment trusts. Scudder Trust had the authority to appoint persons to manage the investment funds, and Scudder Trust appointed Scudder, Stevens & Clark, its parent company, to manage the funds.
Scudder Trust would be paid by the plans rather than from the investment funds. Scudder Trust would disclose to plans that Scudder, Stevens & Clark would be acting as the investment adviser and an independent fiduciary acting on behalf of the plans would both authorize transfers of plan assets to the investment trusts and approve the terms of the fees to be paid. The fees paid to Scudder, Stevens & Clark for managing the funds would be paid by Scudder Trust pursuant to an arrangement negotiated between the parties.
It was important to Scudder Trust that the DOL find the pooled investment funds are “maintained by a bank or trust company” in order to qualify for the statutory exemption of ERISA section 408(b)(8), Internal Revenue Code section 4975(d)(8) and Prohibited Transaction Exemption 91-38 because, unless the exemptions applied, the arrangement between Scudder Trust and Scudder, Stevens & Clark would violated ERISA sections 406(a)(1)(A), 406(a)(1)(D), 406(b)(1) and 406(b)(2).
The DOL found that the terms “bank or trust company” in ERISA section 408(b)(8) and the term “bank” in PTE 91-38 are not defined. The DOL further found that Scudder Trust was regulated by the same state authority and in the same manner as state chartered banks, and therefore, to the extent that Scudder Trust was so regulated, the DOL’s opinion was that Scudder Trust was a bank or trust company for purposes of ERISA section 408(b)(8) and a bank for purposes of PTE 91-38, and 29 CFR 2510.3-101(h)(ii).
Advisory Opinion 96-15A is mentioned in Advisory Opinion 2006-07A (Aug. 15, 2006) to support the proposition that a trust company which retained its parent company to manage a collective investment fund and whose activities were subject to a state banking commissioner’s supervision and examination would be considered a bank for purposes of PTE 91-38.