Union credit union as depository for benefit funds

P/OPINION 76-120

                                                    3(14)


                         December 8, 1976


  Dear             :

  Thank you for your letter requesting an interpretation on
  behalf of the (named) Local #   (the Union) regarding the
  proposed transaction described below. I regret the delay
  in responding to your letter.

  The proposed transaction involves designating the (named)
  Credit Union, Inc. (the Credit Union) as the depository to
  receive monthly employer contributions for six funds
  established for Union members and to transmit such
  contributions to those funds. The six funds are: Health
  & Welfare Fund, Vacation Fund, Holiday Fund, Pension Fund,
  Joint Apprenticeship and Adult Education Fund, and Working
  Assessment Account.

  You ask the following specific questions regarding the
  proposed transaction:

         1.   Are all six of the above listed funds covered by
              the Employee Retirement Income Security Act of
              1974 (ERISA)?

         2.   Does the definition of "party in interest" in
              ERISA include the Credit Union on the basis that
              it is an affiliate of the Union or because its
              board members are employees and officers of the
              Union?

         3.   If the Credit Union is considered a party in
              interest, do the exemptions provided by section
              408(b)(4) or (6) of ERISA apply to the transfer
              of fund assets to the Credit Union? (You also
              ask a number of questions elaborating upon this
              basic question.)

         4.   What changes should be made in the proposed
              Depository Agreement to allow this transaction to
              meet the requirements of section 408(b)(4) and
              (6) of ERISA?
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P/OPINION 76-120

You advise that the Union has a Depository Agreement with
the (named) Savings and Loan Company of (City, State)
(Current Depository) and that the Agreement provides
that the (City) Electrical Contractors (the employer group
which has a collective bargaining agreement with the
Union) shall deposit on the 15th of each month with the
Current Depository amounts sufficient to cover
contributions to the six funds listed above. At this time
the (City) Electrical Contractors shall also send to the
Current Depository transmittal information directing how
such funds shall be disbursed. Each member of the (City)
Electrical Contractors will send only one monthly check
which will cover payments to all six funds. From the
transmittal information, the Current Depository will then
make the appropriate deposits to each fund. For
convenience, the employers insist on only one check a
month; therefore, the Current Depository must distribute
the proper amounts to each fund.

You explain that the amounts received by the Current
Depository for the Health & Welfare Fund and Pension Fund
are only temporary deposits as the Current Depository acts
only as a conduit and collection agency of the funds,
rather than as an investment medium for the funds.
Shortly after receiving the employers' checks each month,
the Current Depository transfers the monies for the Health
& Welfare Fund and Pension Fund to the (City) Trust
Company into checking accounts for each of these two
funds. Similarly, amounts received by the Current
Depository for the Joint Apprenticeship and Adult
Education Fund and the Working Assessment Account are also
temporary deposits and are always distributed by the
Current Depository by the end of the month in which they
are received. The Joint Apprenticeship and Adult
Education Fund money is deposited in a commercial checking
account by the end of the month as soon as it is requested
by the administrator of that Fund. The Working Assessment
Account money is automatically deposited into the Union's
commercial checking account by the end of the month. All
withdrawals from any amounts held by the Current
Depository must be made only after receiving withdrawal
authorization from the applicable trustee or
administrator. The Current Depository pays five percent
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P/OPINION 76-120

daily interest, compounded quarterly, on amounts it holds
for the funds and is reimbursed for administrative expense
at the rate of 48¢ per month for each employee statement
issued.

The Union proposes to change the depository in the future
from the Current Depository to the Credit Union. You
advise that the proposed agreement provides that the same
funds will be established as in the present agreement and
that the (City) Electrical Contractors will deposit the
necessary amounts by the 15th of each month with one check
accompanied by transmittal forms directing the
distribution of the deposits. As with the Current
Depository, the Credit Union will act as a conduit for the
temporary deposits for the Pension Fund and Health &
Welfare Fund and then will transfer such deposits to a
commercial bank (in separate checking accounts) yet to be
named. The Credit Union would hold these deposits for
only one or two days and then send them to the commercial
bank. At any time after the month's deposit is made,
there could be as much as $2,000,000 to $3,000,000 held by
the Credit Union for the Pension Fund and Health & Welfare
Fund before the Credit Union transfers these amounts
shortly thereafter, according to your estimate. As with
the Current Depository, amounts paid to the Credit Union
for the Joint Apprenticeship and Adult Education Fund and
the Working Assessment Fund are also only temporary
deposits and will be paid out by the end of the month in
which the deposits are received to the proper Union
checking accounts. The Credit Union will not pay any
interest on deposits for these two funds since it is just
performing an administrative function at no charge and
acting as a conduit or collection agency for these funds.
All deposits to the Credit Union for all six funds will be
fully insured by               , an agency of the (State).

You state that the Credit Union will pay five percent
interest per annum on deposits for the Vacation Fund and
Holiday Fund and will also provide, at its own cost, life
insurance for each employee equal to the sum of his
account in these funds, but not exceeding $2,000. You
believe that the value of this added benefit exceeds the
difference in daily interest computation of the Current
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P/OPINION 76-120


Depository and annual interest of the proposed depository
agreement. You estimate that at the end of any fiscal
year, there could be as much as $2,000,000 in the Holiday
and Vacation Funds before they are distributed at that
time to the employees by the Credit Union. The Credit
Union will also issue monthly statements to the employees
and charge the exact cost of postage, forms, and
stationery to these funds.

You state that all members of the Credit Union are either
members of the Union or dependents of members of the
Union. The Credit Union is run by a seven -member board,
currently including Mr. (x), who is also an officer of
both the Credit Union and the Union, an employee of the
Credit Union, and a trustee of the Health & Welfare Fund.
His wife is also employed by the Credit Union. You
explain that members are elected to the Credit Union board
and that membership on the Credit Union board is
completely unrelated and separate to being an officer in
the Union (also an elected position). No investments by
the Credit Union can be made without prior approval of its
board. You also advise that the depository is chosen by
the joint conference which consists of five Union members
and five representatives of the (City) Electrical
Contractors.

With regard to your first question, section 4(a) of ERISA
explains that, with certain exceptions not relevant to
this case, Title I of ERISA shall apply to any employee
benefit plan if it is established or maintained (1) by any
employer engaged in commerce or in any industry or
activity affecting commerce, or (2) by any employee
organization or organizations representing employees
engaged in commerce or in any industry or activity
affecting commerce, or (3) by both. The term "employee
benefit plan" is defined in section 3(3) as an employee
welfare benefit plan or an employee pension benefit plan
or a plan which is both an employee welfare benefit plan
and an employee pension benefit plan.

Section 3(1) of ERISA defines the term "employee welfare
benefit plan" as any plan, fund, or program which was
heretofore, or is hereafter established or maintained by
an employer or by an employee organization, or by both, to
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P/OPINION 76-120

the extent that such plan, fund, or program was
established or is maintained for the purpose of providing
for its participants or their beneficiaries, through the
purchase of insurance or otherwise, (A) medical, surgical,
or hospital care or benefits, or benefits in the event of
sickness, accident, disability, death or unemployment, or
vacation benefits, apprenticeship or other training
programs, or day care centers, scholarship funds, or
prepaid legal services, or (B) any benefit described in
section 302(c) of the Labor Management Relations Act, 1947
(other than pensions on retirement or death, and insurance
to provide such pensions).

"Employee pension benefit plan" is defined in section 3(2)
as any plan, fund, or program which was heretofore or is
hereafter established or maintained by an employer or by
an employee organization, or by both, to the extent that
by its express terms or as a result of surrounding
circumstances such plan, fund, or program (A) provides
retirement income to employees, or (B) results in a
deferral of income by employees for periods extending to
the termination of covered employment or beyond,
regardless of the method of calculating the contributions
made to the plan, the method of calculating the benefits
under the plan, or the method of distributing benefits
from the plan.

Although you did not submit copies of the plan documents
of the six funds listed above, or describe the nature of
these funds, your letter indicates that all six funds were
established pursuant to a collective bargaining agreement.
If each of the six funds provides the types of benefits
mentioned above and described in section 3(1) or section
3(2) of ERISA, all six funds would be covered by Title I
of ERISA.

With regard to your second question, section 3(14) of
ERISA lists ten categories of persons deemed to be parties
in interest with respect to an employee benefit plan, as
follows:

     (A)   any fiduciary (including, but not limited to,
           any administrator, officer, trustee, or
           custodian), counsel, or employee of such
           employee benefit plan;
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P/OPINION 76-120


    (B)     a person providing services to such plan;

    (C)     an employer any of whose employees are covered
            by such plan;

    (D)     an employee organization any of whose members
            are covered by such plan;

    (E)     an owner, direct or indirect, or 50 percent or
            more of--

            (i)    the combined voting power of all classes of
                   stock entitled to vote or the total value
                   of shares of all classes of stock of a
                   corporation

          (ii)     the capital interest or the profits
                   interest of a partnership, or

          (iii)    the beneficial interest of a trust or
                   unincorporated enterprise,

    which is an employer or an employee organization
    described in subparagraph (C) or (D);

    (F)     a relative (as defined in paragraph (15) of any
            individual described in subparagraph (A), (B),
            (C), or (E);

    (G)     a corporation, partnership, or trust or estate
            of which (or in which) 50 percent or more of--

            (i)    the combined voting power of all classes of
                   stock entitled to vote or the total value
                   of shares of all classes of stock of such
                   corporation,

           (ii)    the capital interest or profits interest of
                   such partnership, or

          (iii)    the beneficial interest of such trust or
                   estate, is owned directly or indirectly, or
                   held by persons described in subparagraph
                   (A), B), C, (D), or (E)
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P/OPINION 76-120


    (H)   an employee, officer, director (or an
          individual having powers or responsibilities
          similar to those of officers or directors), or a
          10 percent or more shareholder directly or
          indirectly, or a person described in
          subparagraph (B), (C), (D), (E), or (G), or of
          the employee benefit plan; or

    (I)   a 10 percent or more (directly or indirectly in
          capital or profits) partner or joint venturer of
          a person described in subparagraph (B), (C),
          (D), (E), or (G).

Prohibited Transaction Exemption 76-1, published in the
Federal Register on March 26, 1976 (40 FR 12740) states in
Part C (page 12744) that two or more multiple employer
plans are not parties in interest or disqualified persons
with respect to each other merely because they are
maintained by the same plan sponsors. ERISA IB 75-8, copy
enclosed, explains in Question and Answer D -3 that a plan
administrator or a trustee of a plan is a fiduciary.

Under section 3(14)(D) of ERISA, therefore, the Union is a
party in interest with respect to all six plans. Union
officers are parties in interest with respect to all six
plans under section 3(14)(H). However, section 3(14) does
not include within the categories of persons deemed to be
parties in interest a person whose employees or directors
are employees and officers of another party in interest.
Since there is no ownership or family relationship between
the Credit Union and the Union or between the Credit Union
and its members who are Union officers a nd employees,
subparagraphs (E), (F), (G), and (I) of section 3(14) do
not apply in this case.

However, since your letter indicates that the Credit Union
would serve as a trustee for the Vacation and Holiday
Funds, the Credit Union would be a fiduciary with respect
to these funds, in accordance with the explanation
provided in Question and Answer D-3 of ERISA IB 75-8.
Therefore, we conclude that the Credit Union would be a
party in interest under section 3(14)(A) of ERISA with
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P/OPINION 76-120

respect to these two plans. Furthermore, since your
letter indicates that the Credit Union would provide
collection and transfer services to the Health & Welfare
Fund, the Pension Fund, the Joint Apprenticeship and Adult
Education Fund, and the Working Assessment Account, we
conclude that the Credit Union would be a party in
interest under section 3(14 )(8) with respect to these four
plans.

We also wish to point out, with respect to Mr. (x)'s
service as a trustee of the Health & Welfare Fund, as an
officer of both the Credit Union and the Union, and as an
employee of the Credit Union, that although section
408(c)(3) of ERISA permits an officer, employee, agent, or
other representative of a party in interest to also
serve as a fiduciary, section 406(b) prohibits a fiduciary
with respect to a plan from (1) dealing with the assets of
the plan in his own interest or for his own account, (2 )
acting in any transaction, in his individual or in any
other capacity, involving the plan on behalf of a party
(or representing a party) whose interests are adverse to
the interests of the plan or the interests of its
participants or beneficiaries, or (3) receiving any
consideration for his own personal account from any party
dealing with such plan in connection with a transaction
involving the assets of the plan. Furthermore, we are
expressing no opinions as to whether the proposed
transaction described above meets the fiduciary
requirements of section 404(a)(l) of ERISA or the
requirements of the Labor Management Relations Act, 1947.

With regard to your third and fourth questions, the
Department of Labor and the Internal Revenue Service have
issued proposed regulations relating to section 408(b)(2),
(4) and (6) of ERISA and the corresponding section of the
Internal Revenue Code of 1954 (41 FR 31874 and 31838). A
copy of each of these proposed regulations is enclosed for
your convenience. Until these regulations are finalized,
the Department will not issue interpretations or opinions
regarding the application of this section of ERISA to
factual situations such as you describe. We regret,
therefore, that we cannot answer your third and fourth
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P/OPINION 76-120


questions at this time. After the regulations are
finalized, however, we will be glad to try to answer any
questions you may wish to submit to us at that time.

Sincerely,




Enclosures:   Copy of 41 FR 31874 and 31838
              ERISA IB 75-8