Collective Trusts and Other Commingled Funds. Law and Regulation

  • ID: 4196547
  • Book
  • Region: United States
  • 502 Pages
  • ALM Media, LLC
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Written by two leading attorneys in the asset management field, collective trusts 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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TABLE OF CONTENTS

CHAPTER 1

Introduction
§ 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 Com-mon Trust Funds
§ 1.04    Commingled Fund Advantages
§ 1.05    Commingled Fund Disadvantages

CHAPTER 2

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

CHAPTER 3

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 Partici-pants
[1]    Quarterly Letters or Fund Fact Sheets
[2]    Plan Participant Disclosures: DOL Regulation 404a-5

CHAPTER 4

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 Mort-gage-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]    Investments in Other Investment Vehicles—Exchange-Traded Funds
[5]    Investments in 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

CHAPTER 5

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    Recordkeeping Platforms
[1]    Revenue Sharing
§ 5.04    Omnibus Accounts

CHAPTER 6

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

CHAPTER 7

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 Collec-tive Trust Fund Regulation
§ 7.03    Account Reviews: OCC Regulation 12 C.F.R. § 9.6
§ 7.04    Sections 23A and 23B
[1]    Section 23A
[2]    Section 23B
§ 7.05    Interagency Policy on Banks/Thrifts Providing Financial Support to Advised Funds
§ 7.06    The Volcker Rule
§ 7.07    Regulatory Examinations

CHAPTER 8

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 457 Plans
[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

CHAPTER 9

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 Exemption 84-14
§ 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 Rule 408b-2
[6]    Transactions with Broker-Dealers and Other Fi-nancial 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: Prohib-ited 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

APPENDICES
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 (March 27, 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 Organiza-tion 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 1934 Act
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 (May 1997)
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 (May 11, 2005)
D.    Forms
Appendix C-10    Form 5500 and Selected Schedules
Appendix D    Tax Materials
A.    Statutes
Appendix D-1    Selected Portions of Inter-nal Revenue Code Section 401(a)
Appendix D-2    Internal Revenue Code Sec-tion 414(d)
Appendix D-3    Selected Portions of Inter-nal Revenue Code Section 457
Appendix D-4    Internal Revenue Code Sec-tion 501(a)
Appendix D-5    Internal Revenue Code Sec-tion 584
B.    Other
Appendix D-6    IRS Revenue Ruling 81-100
Appendix D-7    IRS Revenue Ruling 2011-1
Appendix D-8    Form 5316
Index

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Thomas P Lemke
Gerald T. Lins
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