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Trust Examination Manual
Advisory
Opinion 2004-07A
July 1, 2004
2004-07A
ERISA Sec. 412
William A. Mrozowski
President and Chief Executive Officer
First Commonwealth Trust Company
614 Philadelphia Street
Indiana, PA 15701-0400
Dear Mr. Mrozowski:
This is in response to your request for an advisory opinion regarding the application
of section 412 of Title I of the Employee Retirement Income Security Act of 1974
(ERISA). Specifically, you ask whether the First Commonwealth Trust Company (FCTC)
is exempt from ERISA’s fidelity bonding requirement pursuant to the statutory
exemption in section 412(a)(2) of ERISA with respect to plans for which FCTC
acts in a fiduciary capacity. You also ask whether FCTC would be covered by the
regulatory exemption in 29 C.F.R. §§ 2580.412-27 and 412-28 applicable to certain
banking institutions and trust companies subject to federal regulation.
The correspondence and materials you forwarded contain the following facts
and representations. FCTC is a corporation that has operated as a trust company
in
the State of Pennsylvania since 1991, and it is authorized to exercise trust
powers under a non-deposit trust bank charter from Pennsylvania. Although
FCTC is not itself a member of the Federal Reserve System, it is a wholly
owned subsidiary
of First Commonwealth Financial Corporation (“First Commonwealth”), a bank
holding company. Further, an affiliate of FCTC, another wholly owned subsidiary
of First
Commonwealth, is a state-chartered member bank of the Federal Reserve System.
First Commonwealth is subject to supervision and examination by the Federal
Reserve System pursuant to the Bank Holding Company Act. You represent that
FCTC is subject
to examination and supervision by Pennsylvania banking regulators under state
law and by the Federal Reserve System pursuant to section 5 of the Bank Holding
Company Act, 12 U.S.C. § 1844, which provides the Federal
Reserve System with the authority to supervise and examine subsidiaries of
bank holding companies.(1) You represent that the Federal Reserve Bank of
Cleveland
in fact periodically examines FCTC. You further represent that FCTC has over
$1 million in capital and surplus, and has fidelity bonding coverage that
would satisfy the bonding coverage required for First Commonwealth under
federal banking
law.
Section 412 of ERISA, subject to certain exceptions, requires that every fiduciary
of an employee benefit plan and every person who handles funds or other property
of such a plan shall be covered by a fidelity bond that meets the requirements
of section 412 of ERISA and the Department of Labor’s implementing regulations.
Section 412(a)(2) provides, in relevant part, that no bond shall be required
of a fiduciary (or of any director, officer, or employee of such fiduciary) if
such fiduciary – (A) is a corporation organized and doing business under the
laws of the United States or of any State; (B) is authorized under such laws
to exercise trust powers or to conduct an insurance business; (C) is subject
to supervision or examination by Federal or State authority; and (D) has at all
times a combined capital and surplus in excess of such a minimum amount as may
be established by regulations issued by the Secretary, which amount shall be
at least $1,000,000.(2)
Section 412(a)(2) of ERISA further provides that the exemption for such fiduciaries
shall apply to a bank or other financial institution which is authorized
to exercise trust powers and the deposits of which are not insured by the
Federal Deposit
Insurance Corporation (FDIC), “only if such bank or institution meets bonding
or similar requirements under State law which the Secretary [of Labor] determines
are at least equivalent to those imposed on banks by Federal law.” The Secretary
has not made any determinations as to whether any state bonding or similar
requirements are at least equivalent to those imposed on banks by federal
law. The statutory
exemption in section 412(a)(2) thus is not available to any bank or other
financial institution authorized to exercise trust powers that has deposits
that are not
insured by the FDIC. It is the view of the Department, however, that banks
and other financial institutions that have no deposits, such as FCTC, are
not subject
to this additional condition. Accordingly, based
on your representations that FCTC satisfies all of the other conditions in
section 412(a)(2), FCTC would satisfy the conditions for the exemption in
section 412(a)(2)
of ERISA with respect to the ERISA-covered plans for which FCTC acts in a
fiduciary capacity.
The Department has also promulgated regulations under section 412 of ERISA. The
regulation at 29 C.F.R. § 2550.412-1 provides, in relevant part, that any plan
official, as defined in section 412(a), shall be deemed to be in compliance with
the bonding requirements of ERISA if he or she is exempt from such bonding requirements
under an exemption in Part 2580 of Title 29 of the Code of Federal Regulations.(3)
The regulations at 29 C.F.R. §§ 2580.412-27 and 412-28 provide “banking institutions
and trust companies subject to regulation and examination by the Comptroller
of the Currency or the Board of Governors of the Federal Reserve System, or the
Federal Deposit Insurance Corporation” with an “exemption from the bonding requirements”
in sections 412(a) and (b) of ERISA.(4)
In the view of the Department, the authority of the Federal Reserve System over
FCTC as a subsidiary of a bank holding company pursuant to the Bank Holding Company
Act constitutes regulation and examination by the Board of Governors of the Federal
Reserve System within the meaning of 29 C.F.R. §§ 2580.412-27 and 412-28.(5)
Accordingly, based on the facts and representations you supplied, it is the opinion
of the Department that FCTC would also be exempt under 29 C.F.R. §§ 2580.412-27
and 412-28 from being bonded under Title I in connection with its handling of
plan funds or other property of ERISA-covered welfare and pension plans.
This letter constitutes an advisory opinion under ERISA Procedure 76-1, 41 Fed.
Reg. 36281 (1976), and, accordingly, is issued subject to the provisions of that
procedure, including section 10 thereof, relating to the effect of advisory opinions.
Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
Footnotes
12 U.S.C. § 1844(c) provides in relevant part: “(1) Reports (A) In general
– The Board, from time to time, may require a bank holding company and any
subsidiary
of such company to submit reports under oath to keep the Board informed as
to – (i) its financial condition, systems for monitoring and controlling
financial
and operating risks, and transactions with depository institution subsidiaries
of the bank holding company; and (ii) compliance by the company or subsidiary
with applicable provisions of this chapter or any other Federal law that
the Board has specific jurisdiction to enforce against such company or subsidiary.
. . . (2) Examinations (A) Examination authority for bank holding companies
and
subsidiaries – Subject to subparagraph (B), the Board may make examinations
of each bank holding company and each subsidiary of such holding company
in order
– (i) to inform the Board of the nature of the operations and financial condition
of the holding company and such subsidiaries; (ii) to inform the Board of
– (I) the financial and operational risks within the holding company system
that may pose a threat to the safety and soundness of any depository institution
subsidiary
of such holding company; and (II) the systems for monitoring and controlling
such risks; and (iii) to monitor compliance with the provisions of this chapter
or any other Federal law that the Board has specific jurisdiction to enforce
against such company or subsidiary and those governing transactions and relationships
between any depository institution subsidiary and its affiliates.”
- In the absence of regulations setting higher capital and
surplus requirements under section 412(a)(2) of ERISA,
the requisite amount to be eligible for the exemption is the $1,000,000
minimum provided
in the statute.
- 29 C.F.R. §2550.412-1, pending issuance of permanent bonding
regulations implementing section 412 of ERISA, incorporates
by reference most of the bonding regulations issued under the predecessor
statute,
the Welfare and Pension Plans Disclosure Act (the
WPPDA) and makes them applicable to plan officials under ERISA.
- Sections 2580.412-27 and 412-28 provide an exemption from
the “bonding requirements” in section 412(a) and
(b) of ERISA, but not from the section 412(b) prohibition on any plan
official, or any other
person having the authority to direct the receipt,
handling, disbursement, or other exercise of custody or control of any
of the funds or other
property of any employee benefit plan, from directing
that such functions be performed by any plan official with respect to
whom the requirements
of subsection 412(a) have not been met.
- You represent that FCTC is neither a registered investment
advisor nor a broker-dealer that would be a “functionally
regulated subsidiary” of a bank holding company within the meaning of
the Bank
Holding Company Act. We express no opinion in this
letter regarding the applicability of the bonding exemption in 29 C.F.R.
§§ 2580.412-27
and 412-28 to entities that are “functionally regulated
subsidiaries” within the meaning of the Bank Holding Company Act.
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