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2004-07A
ERISA Sec. 412
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William A. Mrozowski
President and Chief Executive Officer
First Commonwealth Trust Company
614 Philadelphia Street
Indiana, PA 15701-0400
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Dear Mr. Mrozowski:
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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.
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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.
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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)
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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.
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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)
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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.
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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.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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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.”
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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.
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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.
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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.
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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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