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U.S. Securities and Exchange Commission

Securities Act of 1933 — Section 5, Rule 180
ABA Retirement Funds

November 25, 2013

RESPONSE OF THE CHIEF COUNSEL'S OFFICE
DIVISION OF INVESTMENT MANAGEMENT

IM Ref. No. 20129281437
File No. 132-3

Your letter, dated November 25, 2013, requests assurance that we would not recommend enforcement action to the Securities and Exchange Commission ("Commission") under section 5 of the Securities Act of 1933 ("1933 Act") against ABA Retirement Funds ("ABA RF"), an Illinois not-for-profit corporation, as sponsor of the ABA RF Program (the "Program"), or the American Bar Association Members/Northern Trust Collective Trust (the "Program's Collective Trust") if the Program's Collective Trust files a post-effective registration statement on Form S-1 under the 1933 Act to remove the units of beneficial interest in the Program's Collective Trust ("Units") from registration under the 1933 Act, and thereafter ceases to register the Units under the 1933 Act. We are providing you such assurance in this letter, as detailed below. 

Background

You state the following:

  • ABA RF is a not-for-profit corporation organized in 1961 by the American Bar Association ("ABA") as a professional association for the purpose of sponsoring the Program, a tax-qualified retirement plan program for adoption by individual lawyers and law firms ("Participants") who are members of the ABA or members of state or local bar associations represented in the ABA's House of Delegates. The ABA RF's board of directors ("Board") consists of nine members elected by the Board of Governors of the ABA. The ABA RF has a paid staff of four persons. 
  • ABA RF sets its fees solely to cover its costs of operations and the maintenance of reasonable corporate reserves ("Reserves"). The ABA RF's sole source of revenue is a cost-based fee charged against the assets of the Program's Collective Trust and any investment return on the Reserves. The ABA RF actively monitors its costs and its revenues and from time to time adjusts the fee schedule to reflect current costs and revenues. The ABA RF, after consultation with and approval by the Board, will use its reasonable efforts to limit its Reserves to an amount not in excess of approximately three times its annual operating costs.
  • Participants participate in the Program through either their own individually designed retirement plans ("Individually Designed Plans") or by adopting a plan established in accordance with one or both of two master plans sponsored by ABA RF (the "ABA Members Plans" and, together with the Individually Designed Plans, the "Plans"). All of the Plans participating in the Program meet the requirements for qualification under section 401(a) of the Internal Revenue Code of 1986 (the "Code").[1] The assets of ABA Members Plans invested under the Program are held in trust in accordance with the provisions of the "master trust," which is adopted by each Participant that adopts an ABA Members Plan. The assets of Individually Designed Plans invested under the Program are held in trust in accordance with the provisions of the "pooled trust," which is adopted by each Participant that sponsors an Individually Designed Plan that participates in the Program. At the time the assets are contributed under the Plans and received by or on behalf of the trustee of the "master trust" or the "pooled trust" (the "Conduit Trusts"), the assets are immediately passed through to the Investment Options, as defined below. The Program's Collective Trust consists of a series of bank-maintained collective trust sub-funds ("Funds"). These Funds, together with self-managed brokerage accounts made available to Participants, are referred to as the Program's "Investment Options."[2] ABA RF, as sponsor of the Program, has engaged Northern Trust Company ("Northern Trust") as trustee for the Program's Collective Trust pursuant to a Fiduciary Investment Services Agreement ("FISA").[3]
  • The Program's Collective Trust issues Units representing pro rata beneficial interests in each of its Funds to the Plans.[4] The Program's Collective Trust has relied on the exemption from registration under the 1933 Act provided by rule 180 under the 1933 Act for issuances of Units to Plans of Participants who certify to their satisfaction of the conditions imposed by rule 180(a)(3) and has registered Units under the 1933 Act for issuances to Plans of Participants who do not provide a certificate regarding their satisfaction of such conditions.[5]

  • For purposes of rule 180(a)(3)(ii)(A), Northern Trust, in accordance with the FISA, is the financial institution providing the Program's funding vehicle, and ABA RF provides advice to Participants in connection with the Plans. If ABA RF is treated as a person who does not have a "material business relationship" with Northern Trust under rule 180(a)(3)(ii)(A), Units issued to the Plans of all Participants would meet the requirements for exemption from registration under the 1933 Act in rule 180. The effect of deregistering the Units under the 1933 Act would result in significant savings for the Program.

Our Response

Based on the facts and circumstances described in your letter, we would not recommend enforcement action to the Commission under section 5 of the 1933 Act against ABA RF or the Program's Collective Trust if the Program's Collective Trust files a post-effective registration statement on Form S-1 under the 1933 Act to remove the Units from registration under the 1933 Act, and thereafter ceases to register the Units under the 1933 Act. 

Our response is based, in part, on the following representations:

  • The Program will use its most recent prospectus forming part of the registration statement on Form S-1 under the 1933 Act, appropriately supplemented to reflect the deregistration of the Units, as the initial disclosure document for the Program's Collective Trust until a date in 2014, but no later than the date on which the Program's Collective Trust would have been required to deliver a new prospectus but for the deregistration of the Units (i.e., April 30, 2014).
  • Northern Trust has agreed that on or before April 30, 2014, and at least once each year thereafter, the Program's Collective Trust will cause to be delivered to the Program's Employers a disclosure document (the "Program Disclosure Document"). The Program Disclosure Document will provide information about the Program's Collective Trust required to be disclosed to Participants by ERISA and will be in compliance with the applicable requirements of Items 1 through 8 of Form N-1A[6] or any successor thereto. If ABA RF engages an entity other than Northern Trust to serve as the trustee of the Program's Collective Trust, ABA RF will require such trustee to agree as set forth above.

Our response expresses our view on enforcement action only and does not express any legal or interpretive position on the issues presented. Because our position is based upon the facts and representations set forth in your letter, any different facts or representations may require a different conclusion.[7]

David Joire
Senior Counsel


[1]             The ABA Members Plans are classified under Internal Revenue Service ("IRS") procedures as "master plans" designed to allow qualified employers to establish and maintain employee benefit plans that are qualified under section 401(a) of the Code. The trustees of each Individually Designed Plan must represent that such Plan is qualified under section 401(a) of the Code to be eligible to participate in the Program.

[2]             The Conduit Trusts hold only units issued by the Program's Collective Trust and the assets held in the Program's self-managed discount brokerage option, and such trusts have been determined by the IRS to be tax-exempt trusts under section 501(a) of the Code.

[3]             The FISA (1) obligates Northern Trust, in relevant part, to (a) develop and maintain a Program investment policy, which specifies the Investment Options to be provided by the Program's Collective Trust and the investment objectives and performance benchmarks of such options and (b) operate the Program's Collective Trust in a manner consistent with such policy, (2) specifies the fees payable to Northern Trust and (3) requires that Northern Trust accept complete fiduciary liability under the Employee Retirement Income Security Act of 1974 ("ERISA") for its activities as trustee. In addition, because of its discretion to engage, retain and terminate Northern Trust as the trustee of the Program's Collective Trust, the ABA RF's activities are subject to ERISA. In accordance with the FISA, Northern Trust has entered into a master services agreement with a wholly-owned subsidiary pursuant to which such subsidiary carries out Northern Trust's obligations to act as trustee of the Collective Trust and perform related duties.

[4]             The Program's Collective Trust relies on the exclusion from the definition of investment company contained in section 3(c)(11) of the Investment Company Act of 1940 ("1940 Act").

[5]             Rule 180 under the 1933 Act provides that:

(a) Any interest or participation in a single trust fund or in a collective trust fund maintained by a bank, or any security arising out of a contract issued by an insurance company, issued to an employee benefit plan shall be exempt from the provisions of section 5 of the Act if the following terms and conditions are met:
              (1) The plan covers employees, some or all of whom are employees within the meaning of section 401(c)(1) of the Internal Revenue Code of 1954, and is either: (i) A pension or profit-sharing plan which meets the requirements for qualification under section 401 of such Code, or (ii) an annuity plan which meets the requirements for the deduction of the employer's contribution under section 404(a)(2) of such Code;
              (2) The plan covers only employees of a single employer or employees of interrelated partnerships; and
              (3) The issuer of such interest, participation or security shall have reasonable grounds to believe and, after making reasonable inquiry, shall believe immediately prior to any issuance that:
                             (i) The employer is a law firm, accounting firm, investment banking firm, pension consulting firm or investment advisory firm that is engaged in furnishing services of a type that involve such knowledge and experience in financial and business matters that the employer is able to represent adequately its interests and those of its employees; or

                             (ii) In connection with the plan, the employer prior to adopting the plan obtains the advice of a person or entity that (A) is not a financial institution providing any funding vehicle for the plan, and is neither an affiliated person as defined in section 2(a)(3) of the Investment Company Act of 1940 of, nor a person who has a material business relationship with, a financial institution providing a funding vehicle for the plan; and (B) is, by virtue of knowledge and experience in financial and business matters, able to represent adequately the interests of the employer and its employees.

(b) Any interest or participation issued to a participant in either a pension or profit-sharing plan which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1954 or an annuity plan which meets the requirements for the deduction of the employer's contribution under section 404(a)(2) of such Code, and which covers employees, some or all of whom are employees within the meaning of section 401(c)(1) of such Code, shall be exempt from the provisions of section 5 of the Act.

[6]             Form N-1A is the registration form used by open-end management investment companies to register under the 1940 Act and to offer their securities under the 1933 Act. See Form N-1A, available at http://www.sec.gov/about/forms/formn-1a.pdf.

[7]             The Division of Investment Management generally permits third parties to rely on no-action or interpretive letters to the extent that the third party's facts and circumstances are substantially similar to those described in the underlying request for a no-action or interpretive letter. See Informal Guidance Program for Small Entities, Investment Company Act Release No. 22587 (Mar. 27, 1997), n. 20. In light of the very fact-specific nature of the request, however, the position expressed in this letter applies only to ABA RF, as sponsor of the Program, and the Program's Collective Trust, and no other entity may rely on this position.

Incoming Letter

The Incoming Letter is in Acrobat format.


http://www.sec.gov/divisions/investment/noaction/2013/aba-rf-112513.htm

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Modified: 11/26/2013