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Collective Trusts and Other Commingled Funds: Law and Regulation

  • ID: 3178878
  • Book
  • 502 Pages
  • ALM Media, LLC
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Written by two leading attorneys in the asset management field.

Collective trusts funds and other commingled funds comprise a major - and rapidly growing - segment of the asset management and pension fields. However, to date, little guidance has been available to practitioners for the day-to-day issues and problems they may confront in dealing with these investment vehicles. Collective Trusts and Other Commingled Funds: Law and Regulation addresses this need by providing a comprehensive explanation of collective and common trust funds, their structure and operations, and the extensive regulatory framework governing them. In addition, the book provides extensive primary source materials as appendices.

The book provides practical guidance and is useful for lawyers, compliance personnel, sales executives, regulators and any other professionals working with collective and common trust funds.

Topics covered include:

- Structure and Operations of Commingled Funds
- Advantages and Disadvantages
- Key Documents
- Portfolio Management and Trading
- Sales and Distribution Activities
- Banking, Securities and ERISA Regulation
- Key Accounting and Tax Issues
- Latest Trends and Developments
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Chapter 1


1.01 General
1.02 Types of Commingled Funds
1 Collective Trust Funds
2 Common Trust Funds
3 Group Trusts
1.03 Brief Background and History of Collective and Common Trust Funds
1.04 Commingled Fund Advantages
1.05 Commingled Fund Disadvantages


Structure of Commingled Funds
2.01 Collective Trust Funds
1 Eligible Investors
2 Ineligible Investors
2.02 Collective Trust Fund Structures
1 “Unitized”Funds
2 Open Architecture/Third-Party Sub-Advisers
3 Funds of Funds
4 Multi-Class Structure
5 Master-Feeder
2.03 Group Trusts


Operation of Collective Trust Funds
3.01 Establishment,Operation, and Liquidation Overview
3.02 Key Service Providers
3.03 Key Documents
1 Declaration of Trust
2 Fund Description/Offering Memorandum
3 Subscription/Participation Agreement
4 Service Provider Required Disclosure
5 Trading Relationship Agreements
6 Form ADV for Investment Adviser
3.04 Communications with Participating Plans and Participants
1 Quarterly Letters or Fund Fact Sheets
2 Plan Participant Disclosures: DOL Regulation 404a-5


Portfolio Management: Investment Strategies and Instruments
4.01 General
4.02 Investment Strategies
1 Investment Strategies - Equities
2 Investment Strategies - Fixed Income
3 Investment Strategies - Stable Value
4 Investment Strategies - Mortgages and Mortgage-Backed Securities
5 Investment Strategies - Alternatives
6 Investment Strategies - Real Estate
7 Investment Strategies - Multi-Asset
8 Investment Strategies - Short-Term Investment Funds (STIFs)
4.03 Investments in Other Investment Vehicles - Generally
1 Investments in Other Investment Vehicles - Other Collective Trust Funds
2 Investments in Other Investment Vehicles - Target Date Funds
3 Investments in Other Investment Vehicles - Mutual Funds
4 Investmentsin Other Investment Vehicles - Exchange-Traded Funds
5 Investmentsin Other Investment Vehicles - Private Funds and Structured Vehicles
4.04 Investment Instruments and Practices - Generally
1 Investment Instruments and Practices - Derivatives
2 Purchases of Rule 144A Securities and Status as Qualified Institutional Buyer
3 Securities Lending


Sales and Related Activities
5.01 Sales and Distribution Process
1 Internal Sales Force
2 Financial Advisors and Broker-Dealers
3 RFPs and Consultants
4 Marketing and Advertising
5.02 Automatic Enrollment and Qualified Default Investment Alternatives (QDIAs)
5.03 Record keeping Platforms
1 Revenue Sharing
5.04 Omnibus Accounts


Investment and Withdrawal Process
6.01 Investment and Withdrawal Process
6.02 National Securities Clearing Corporation (NSCC)
6.03 Direct Investment vs. Unitization
6.04 Valuation
6.05 Large Investments and Large Withdrawals
1 Large Investments in Collective Trust Funds
2 Large Withdrawals from Collective Trust Funds
6.06 In-Kind Transactions
6.07 Transitions
6.08 Late Trading and Market Timing


Bank Regulation of
Collective and Common Trust Funds
7.01 Bank Regulation
7.02 Requirements of OCC Regulation 12 C.F.R. 9.18
1 Written Plan
2 Exclusive Management
3 Valuation,Investments, and Withdrawals
4 Segregation of Investments
5 Annual Audit and Financial Report
6 Advertising Restrictions
7 Self-Dealing and Conflicts of Interest
8 Management Fees
9 Expenses
10 Standard of Care and Good Faith Mistakes
11 Key Differences Between Common and Collective Trust Fund Regulation
7.03 Account Reviews: OCC Regulation 12 C.F.R. 9.6
7.04 Sections23A and 23B
1 Section 23A
2 Section 23B
7.05 Interagency Policy on Banks/Thrifts Providing Financial Support to Advised Funds
7.06 TheVolcker Rule
7.07 Regulatory Examinations


Federal Securities and Commodities Laws
8.01 Securities Act of 1933 and Exemptions
1 Keogh Plans:Rule 180
2 Defined Contribution Plans
8.02 Investment Company Act of 1940 and Exceptions
8.03 Banks,Insurance Companies, Savings and Loans, and Other Financial Institutions:Section 3(c)(3)
1 Common Trust Funds
2 Maintained by a Bank
3 Individual Retirement Accounts (IRAs)
4 Employee Benefit Plan Assets
8.04 Pension and Profit-Sharing Plans: Section 3(c)(11)
1 Single Trusts
2 Collective Trust Funds
3 Section 457Plans
4 Individual Retirement Accounts (IRAs)
8.05 Private Funds: Section 3(c)(1) and Section 3(c)(7)
8.06 Securities Exchange Act of 1934 and Exemptions
1 Exemption from Broker-Dealer Registration: Section 3(a)(12)
2 FINRA Regulation
3 Exemption from Security Registration: Section 12(g)(2)(H) and Rule 12h-1
8.07 Commodity Law Issues
1 Regulatory Notice and Disclosure Requirements


Employee Retirement Income
Security Act of 1974
9.01 General
9.02 Basic Fiduciary Requirements
1 ERISA Requirements for Fiduciaries
9.03 Prohibited Transactions
1 Party-in-Interest Definition
2 Qualified Professional Asset Managers (QPAMs): Prohibited Transaction Class Exemption84-14
9.04 ERISA Fidelity Bonding Requirements: Section 412
9.05 Transactions Involving Collective Trust Funds
1 Purchases and Sales of Interests in Collective Trust Funds: Section 408(b)(8)
2 Arm’s Length Transactions with Collective Trust Funds: Prohibited Transaction Class Exemption 91-38
3 Affiliated Sub-Adviser to Collective Trust Fund: DOL Advisory Op. 96-15A
4 Collective Trust Fund Conversions: Prohibited Transaction Class Exemption 97-41
5 Transactions with Broker-Dealers and Other Service Providers: Section 408(b)(2) and Rule408b-2
6 Transactions with Broker-Dealers and Other Financial Institutions: Prohibited Transaction Class Exemptions 86-128 and 75-1
a Prohibited Transaction Class Exemption 86-128
b Prohibited Transaction Class Exemption 75-1
7 Cross Trades
a Cross Trades:ERISA Section 408(b)(19)
b Cross Trades: Rule 408b-19
8 Investments in Affiliated Mutual Funds: Prohibited Transaction Class Exemption 77-4
9 Securities Lending: Prohibited Transaction Class Exemption 2006-16

9.06 Proxy Voting and Socially Responsible Investing
9.07 Plan Participant Information: Rule 404a-5
9.08 Service Provider Disclosures: Section 408(b)(2) and Rule 408b-2


Appendix A Banking Law Materials

A. Statutes and Regulations

Appendix A-1 12 C.F.R. 9.6
Appendix A-2 12 C.F.R. 9.18

B. OCC Letters

Appendix A-3 OCC Interpretive Letter No.722 (March 12, 1996)
Appendix A-4 OCC Interpretive Letter No.829 (April 9, 1998)
Appendix A-5 OCC Interpretive Letter No.841 (Sept. 21, 1998)
Appendix A-6 OCC Interpretive Letter No.865 (May 26, 1999)
Appendix A-7 OCC Interpretive Letter No.936 (May 22, 2002)
Appendix A-8 OCC Interpretive Letter No.1121 (June 18, 2009)

C. OCC Bulletins

Appendix A-9 OCC Bulletin 2008-10 (March27, 2008)
Appendix A-10 OCC Bulletin 2011-11 (March 29,2011)

D. Other

Appendix A-11 Interagency Policy on Banks/Thrifts Providing Support to Funds Advised by the Banking Organization or its Affiliates (Jan. 5, 2004)
Appendix A-12 Comptroller’s Handbook on Collective Investment Funds (May 2014)
Appendix B Federal Securities Law Materials

A. Statutes and Regulations

1. Securities Act of 1933 (1933 Act)

Appendix B-1 Section 3(a)(2) of the 1933 Act
Appendix B-2 Rule 132 under the 1933 Act
Appendix B-3 Rule 180 under the 1933 Act

2. Securities Exchange Act of 1934 (1934 Act)

Appendix B-4 Section 3(a)(12) of the 1934Act
Appendix B-5 Section 12(g) of the 1934 Act
Appendix B-6 Rule 3a12-6 under the 1934 Act
Appendix B-7 Rule 12h-1 under the 1934 Act

3. Investment Company Act of 1940 (1940 Act)

Appendix B-8 Section 3(c)(3) of the 1940 Act
Appendix B-9 Section 3(c)(11) of the 1940 Act
Appendix B-10 Rule 3c-4 under the 1940 Act

B. FINRA Materials

Appendix B-11 FINRA Rule 150
Appendix B-12 NASD Notice to Members 97-27 (May1997)

C. Commodity Futures Trading Commission (CFTC) Materials

Appendix B-13 CFTC Rule 4.5
Appendix C ERISA Materials

A. Statutes and Regulations

Appendix C-1 ERISA Section 404
Appendix C-2 ERISA Section 406
Appendix C-3 ERISA Section 408
Appendix C-4 DOL Reg. 404a-5

B. Prohibited Transaction Class Exemptions

Appendix C-5 Prohibited Transaction Class Exemption 91-38
Appendix C-6 Prohibited Transaction Class Exemption 84-14
Appendix C-7 Prohibited Transaction Class Exemption 77-4

C. DOL Advisory Opinions

Appendix C-8 DOL Advisory Op. 96-15A (Aug. 7,1996)
Appendix C-9 DOL Advisory Op. 2005-09A (May11, 2005)

D. Forms

Appendix C-10 Form 5500 and Selected Schedules
Appendix D Tax Materials

A. Statutes

Appendix D-1 Selected Portions of Internal Revenue Code Section 401(a)
Appendix D-2 Internal Revenue Code Section414(d)
Appendix D-3 Selected Portions of Internal Revenue Code Section 457
Appendix D-4 Internal Revenue Code Section501(a)
Appendix D-5 Internal Revenue Code Section584

B. Other

Appendix D-6 IRS Revenue Ruling 81-100
Appendix D-7 IRS Revenue Ruling 2011-1
Appendix D-8 Form 5316

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Thomas P. Lemke is an asset management executive with more than thirty years’ experience. Most recently, he was General Counsel and Head of Governance for a global asset management firm. He previously was a partner in a major law firm where his practice specialized in investment management and broker-dealer matters. He also spent several years counseling an investment management firm and a bank, including serving as General Counsel and Chief Operating Officer of a mutual fund firm. Mr. Lemke started his career at the Securities and Exchange Commission, where he last served as Chief Counsel of the Division of Investment Management. He received his J.D. in 1979 from the Washington College of Law, The American University.

Gerald T. Lins is General Counsel of Voya Investment Management (formerly ING U.S. Investment Management), which comprises several investment advisory entities managing a wide variety of investment strategies and vehicles. Mr. Lins has also been in charge of legal matters for a number of major asset managers and fund complexes and also spent several years in private practice, concentrating on general corporate law matters and the regulation of investment companies, investment advisers, and other financial service providers. Prior to that, Mr. Lins was a staff attorney in the Office of Chief Counsel in the SEC’s Division of Investment Management, where he had a broad range of experience with the regulation of investment companies and investment advisers under the federal securities laws. He received his J.D. in 1984 from Harvard Law School.
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