Savings association accounts and ERISA fiduciary status

P/OPINION 77-11
3(14)
3(21)

January 5, 1977

Dear          :

This is in response to your letters of July 20, and August
12, 16 and 30, 1976, on behalf of (named) Savings and Loan
Association requesting a ruling that, with respect to the
plans and transactions described in your letters, the
Association would not be a fiduciary or party in interest
as these terms are defined in the Employee Retirement
Income Security Act of 1974 (ERISA) or subject to the
bonding requirements of ERISA. By the same letters, you
have also requested a ruling from the Internal Revenue
Service that, with respect to the plans and transactions
described in your letters, the Association would not be a
fiduciary or disqualified person as those terms are
defined in section 4975 of the Internal Revenue Code of
1954 (Code). If any of these rulings cannot be issued by
the Department or the Internal Revenue Service, your
letters request that appropriate exemptions be granted
under sections 408(a) or 412(e) of ERISA and section
4975(c)(2) of the Code.

Your letters contain the following representations in
support of the requested rulings under ERISA. A
standardized, low cost qualified defined contribution plan
program would be offered to corporations typically with
less than 100 participants. The program will provide a
prototype plan, plan administration and asset management.
The Association will offer its passbook savings accounts
and term, higher interest yielding certificate investment
accounts ("Accounts") for the investment of plan assets.

The program was developed and proposed by (named), Inc.
(Named), Inc., will have sole responsibility for plan
administration and will be the "named fiduciary" for plan
administration within the meaning of section 402(a) of
ERISA and the "plan administrator" of the plan within the
meaning of section 3(16)(A) and 101(a) of ERISA. (Named),
Inc., will be paid a standardized fixed fee from plan
assets for plan administration. The Association will
reimburse plan assets pursuant to a pre-arranged schedule
for a part of the fee paid to (Named), Inc., depending on
the level of investment in the Association Accounts.
Plans with investments in the Association Accounts at
levels which under the schedule call for 100%
reimbursement by the Association of the fee paid to
(Named), Inc., can direct the plan trustee [Named Bank] to
invest funds in excess of the 100% reimbursement level in
the common pooled investment funds maintained by the Bank
for employee benefit plans.

The trustee for all assets of the plan and the named
fiduciary for asset management and control will be the
Bank. The fee to be paid the Bank will be set prior to
the time the program is implemented based on negotiations
between (Named), Inc., and the Bank.

Assets in place in existing plans will be liquidated and
invested in the Association Accounts only if deemed
prudent by the trustee and plan sponsor. Otherwise, they
will be invested and reinvested by the trustee. The type
of the Association Accounts made available to a plan will
depend on the amounts invested in the Association
Accounts. The evidence of ownership of the Association
Account will be issued in the name of the trustee,
individual accounts will be maintained by (Named), Inc.,
and the Association will provide regular information
reports to the trustee as to deposits, withdrawals and
interest paid.

The Accounts offered by the Association under this program
will be the same type of accounts offered to all customers
of the Association. The Accounts are subject to
regulation by the (State) Savings and Loan Commissioner.
Withdrawals from such Accounts can be made only in
response to directions received from the trustee through
(Named), Inc., and the Association will provide
information reports on substantially the same basis as it
presently provides such reports to all passbook and
certificate account customers.

Potential customers will be introduced to the plan program
through the various branch offices of the Association, and
(Named), Inc., will process resulting applications for
participation in the program.

The Association is not otherwise affiliated with the Bank
or (Named), Inc. The arrangements described in your
letters would, as a legal matter, be nonexclusive so that
(Named), Inc., and the Association will be free to
participate in similar programs with other persons and
entities. Neither the Association nor (Named), Inc., will
be authorized to commit the other legally in any
connection.

As regards the question of whether the Association is a
fiduciary as defined in section 3(21)(A) of ERISA with
respect to any of the plans participating in the
above-described program, your letter represents that the
Association should not be considered a fiduciary for the
following reasons:

(a)   The Association would exercise no discretionary
authority or control respecting management of the
plans. Plan administration would be handled solely
by (Named), Inc., as the named fiduciary for plan
administration.

(b)   The Association would not exercise any authority
or control respecting management or disposition of
plan assets. The Bank would hold the assets as
trustee and named fiduciary for asset management and
control. Disbursements would be made from the
Association Accounts only to the trustee and upon the
instruction of (Named), Inc., as plan administrator
and the Bank as trustee. The Association would only
offer its passbook and certificate accounts as a plan
investment.

(c) The Association would not render any investment
advice for a fee or other compensation as defined in
29 CFR 2510.3-21(c). The Association will provide
information to plan participants and plan sponsors
concerning the Association Accounts but will not
render the comparative-type advice described in that
regulation.

(d) The Association would not have any discretionary
authority or responsibility in connection with the
administration of such plans for the reasons set
forth in paragraph (a) above.

As regards the question of whether the Association is a
party in interest as defined in section 3(14) of ERISA
(other than by reason of being a fiduciary) with respect
to any plan participating in the program, your letter
represents that the Association should not be considered a
"party in interest" because the Association will not be
providing services to a plan, will not be an owner as
described in subparagraph (E) of section 3(14), will not
be owned as described in subparagraph (G) of section
3(14), and will not be partner or joint venturer as
described in subparagraph (I) of section 3(14).

Your letter further represents that: the Association's
only activity with respect to plans, once they are
established, will be to offer its Accounts as a plan
investment. The fee arrangements should not be considered
a partnership or joint venture with any party in interest
because (Named), Inc., and the Bank are being paid a flat
fee agreed upon in advance for services rendered pursuant
to an agreed schedule, rather than associates in an
undertaking to make and share profits. The Association's
reimbursement arrangement is to reimburse plan assets, not
to reimburse any party in interest. The arrangements are
nonexclusive, and none of the parties has the authority or
power to commit another in any connection.

With respect to the question of whether the Association
should be subject to the bonding requirements of section
412 of ERISA, your letter represents that the Association
should not be so subject inasmuch as it will not be a
fiduciary with respect to the plans and should not be
deemed to be handling funds or other property of the
plans.

In this regard, you state that within the meaning of
section 464.7, Part 464, issued under section 13 of the
Welfare and Pension Plans Disclosure Act, as amended, the
duties of the Association under the plan do not present
any possibility ". . . that such funds or other property
would be lost in the event of fraud or dishonesty on the
part of the Association, acting alone or in collusion with
others."

You represent that after the savings account is opened and
the passbook or certificate is issued in the name of the
trustee, the account is in no meaningful sense subject to
physical contact, control or power to transfer by the
Association. The only theoretical risk through dishonesty
would be that the Association would deny the correct
amount in the account. The Association does not have the
authority to disburse funds from the account without the
request of the plan administrator and the trustee. The
accounts cannot be negotiated by the Association.

You conclude that because this is the performance of
essentially a clerical function and information as to
those accounts will be distributed periodically and is
subject to mathematical verification, there would be no
significant risk of mishandling.

Based upon the facts and representations contained in your
letter, it is the view of the Department that the
Association, by participating in the program in the manner
described in your letter, would not be a fiduciary under
section 3(21)(A) of ERISA, and would not be subject to the
bonding requirements of section 412 of ERISA, with respect
to any of the plans or transactions described in your
letter.

The Department notes your representations that the
Association is not a party in interest by virtue of
section 3(14)(E), (G), or (I) but makes no ruling with
respect to whether the Association is a party in interest
by virtue of the operation of such sections. We assume
that you have examined the factual situation carefully and
have determined to your satisfaction that the
Association's relationship to (Named), Inc., or the Bank
or both is such that there is not control relationship as
described in section 3(14)(E) or (G) and no partnership or
joint venture relationship as described in section
3(14)(I).

With regard to the fiduciary status of the Association,
neither the fact that plan monies will be held in the
Association Accounts nor the fact that the Association may
have assisted in the development of the subject
program makes the Association a fiduciary under section
3(21)(A) of ERISA.

With respect to the party in interest status of the
Association, the mere holding of plan monies in the
Association Accounts does not make the Association a
service provider under section 3(14)(E) of ERISA.

With regard to whether the Association is subject to the
bonding requirements of section 412 of ERISA, the monies
deposited in the Association Accounts do not constitute
Plan "funds or other property" as that term is defined in
29 CFR 464.5, issued under section 13 of the Welfare and
Pension Plans Disclosure Act, and applicable to ERISA
under the temporary bonding regulations (29 CFR
255C.412-1). This opinion applies only to the Association
and not to any other person who may be handling plan funds
or other property.

This ruling relates only to section 3(14), 3(21) and 412
of ERISA as they apply to the Association and not to any
other provisions of ERISA. For example, we are expressing
no opinion herein with respect to the prudence under
section 404(a)(1)(B) of ERISA of any of the transactions
described in your letter, nor do we express an opinion as
to whether any of the transactions or arrangements
described in your letter constitute prohibited
transactions under section 406 of ERISA. 1

Because your request also raises questions under section
4975(e)(2) of the Code respecting the definition of the
term disqualified person and section 4975(e)(3) of the
Code respecting the definition of the term fiduciary, we
have conferred with the Internal Revenue Service and they
concur in the views set forth above as they relate to
section 4975(e)(2) and (3) of the Code.

Sincerely,

_____________________
1 Further, we wish to note that ERISA section
404(c)(2) exempts the directed trustee of an individual
account plan from liability for losses arising out of
participant or beneficiary direction. No similar
protection is available with respect to investments
directed by others.