John Hancock Stable Value Fund, Investment Company Act Section 3(c)(11) Securities Act Section 3(a)(2) Exchange Act Section 12(g)(2)(H)
March 25, 2019
March 25, 2019
RESPONSE OF THE STAFF OF THE DIVISION OF INVESTMENT MANAGEMENT
Your letter dated March 6, 2019 requests our assurance that we would not recommend enforcement action to the U.S. Securities and Exchange Commission (the “Commission” or “SEC”) if, as more fully described in your letter, certain Puerto Rico retirement plans described in Section 1022(i)(1) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (such plans, “Puerto Rico-Only Plans”), participate, either directly or indirectly, in certain bank-maintained collective trust funds without registering such trust funds as investment companies under the Investment Company Act of 1940 (the “1940 Act”) in reliance on Section 3(c)(11) of the 1940 Act, and without registering the beneficial interests in such trust funds under the Securities Act of 1933, as amended (“1933 Act”) or the Securities Exchange Act of 1934, as amended (“1934 Act”), in reliance on Section 3(a)(2) of the 1933 Act and Section 12(g)(2)(H) of the 1934 Act.
You state the following:
The John Hancock Stable Value Fund Collective Investment Trust (the “Trust”) is a bank-maintained collective trust fund (“BCT”) that satisfies the conditions of Revenue Ruling 81-100. The Trust is a “stable value” trust that provides for collective investment on behalf of specified tax-favored retirement plans, including tax-qualified defined contribution plans, and has received a determination letter from the Internal Revenue Service (“IRS”) that it is a qualifying 81-100 Group Trust.
The Trust and certain other BCTs in which the Trust seeks to invest (the “Underlying Trusts”) currently rely on Section 3(c)(11) of the 1940 Act, which excludes from the definition of “investment company” certain qualifying BCTs, and Section 3(a)(2) of the 1933 Act and Section 3(a)(12) and of the 1934 Act, which exempt from registration the beneficial interests of certain qualifying BCTs. The Trust and the Underlying Trusts would like to begin accepting Puerto Rico-Only Plan assets without jeopardizing the availability of the 1940 Act exclusion and the 1933 Act and 1934 Act exemptions.
A BCT that accepts assets from a Puerto Rico-Only Plan would not be eligible for the relevant 1940 Act exclusion and 1933 Act and 1934 Act exemptions because Puerto Rico-Only Plans do not meet the requirements for qualification under Section 401 of the Code. You contend that Puerto Rico-Only Plans are substantially equivalent to Section 401 plans in key material respects, and that it would therefore be consistent with the purposes of the relevant exclusion and exemptions to allow the Trust and the Underlying Trusts to accept assets from Puerto Rico-Only Plans.
You contend that the staff has employed similar reasoning in providing no-action assurance under Section 3(c)(11) of the 1940 Act and Section 3(a)(2) of the 1933 Act with respect to the participation by Puerto Rico-Only Plans in insurance company separate account group annuity contracts. Consistent with such prior staff letters, you make the following representations:
(1) any Puerto Rico-Only Plan that invests in the Trust will meet the requirements for tax exemption under Section 1081.01(a) of the Puerto Rico Code;
(2) the Trust, any Puerto Rico-Only Plan that invests in the Trust, and any Underlying Trust will be subject to the provisions of Title I of ERISA;
(3) the Trust and any Underlying Trust, but for the acceptance by the Trust of assets of Puerto Rico-Only Plans, would qualify for the exclusion described in Section 3(c)(11) of the 1940 Act and the exemptions described in Section 3(a)(2) of the 1933 Act and Section 12(g)(2)(H) of the 1934 Act; and
(4) the Trust and any Underlying Trusts will at all times remain in compliance with the terms of Revenue Ruling 81-100, as amended.
Finally, you note that applicable provisions of the Code and Revenue Ruling 2014-24 treat Puerto Rico-Only Plans as eligible to invest in 81-100 Group Trusts without jeopardizing such trusts’ tax-exempt status, notwithstanding the fact that Puerto Rico-Only Plans are not qualified plans under Section 401 of the Code and are not included in any other category of tax-favored retirement plans permitted to invest in 81-100 Group Trusts. You assert that no-action assurance would further the objectives behind Revenue Ruling 2014-24 and Section 1022(i)(1) by extending to Puerto Rico-Only Plans the advantages of the broader diversification opportunities and lower investment costs that investments in BCTs such as the Trust generally can provide. You assert that no-action assurance would be consistent with the purposes of the exclusion and exemptions for BCTs in the 1940 Act, the 1933 Act, and the 1934 Act, and would further Congress’s intent to give equal treatment to life insurance companies and banks with respect to the receipt of investments by pension and profit-sharing plans.
Based on the facts and representations in your letter, we would not recommend enforcement action to the Commission if Puerto Rico-Only Plans participate in the Trust (and, by extension, the Underlying Trusts) without registration of the Trust or the Underlying Trusts as investment companies in reliance on Section 3(c)(11) of the 1940 Act. In addition, the staff of the Division of Corporation Finance and the staff of the Division of Trading and Markets have advised us that, based on the facts and representations in your letter, the Trust and Underlying Trusts may rely on 1933 Act Section 3(a)(2) and 1934 Act Section 12(g)(2)(H), and that they will not recommend that the Commission take enforcement action against the Trust or the Underlying Trusts if the beneficial interests of the Trust and Underlying Trusts are not registered under the 1933 Act or the 1934 Act. Because these positions are based upon all of the facts and representations in your letter, any different facts or representations may require a different conclusion.
The statements in this letter represent the views of the Division of Investment Management. This letter is not a rule, regulation or statement of the Commission, and the Commission has neither approved nor disapproved its content.
Kyle R. Ahlgren
Division of Investment Management
 Revenue Ruling 81-100, 1981-1 C.B. 326, as modified by Revenue Ruling 2011-1, 2011-2 I.R.B. 251 (as modified by Notice 2012-6, 2012-3 I.R.B. 293) and by Revenue Ruling 2014-24, 2014-37 I.R.B. 37 (collectively, “Revenue Ruling 81-100”). Under Revenue Ruling 81-100, retirement plans – including retirement plans qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”) – and certain other tax-favored retirement savings arrangements, may pool their assets for investment purposes in tax-exempt group trusts (each, an “81-100 Group Trust”) if certain requirements are satisfied (including, but not limited to, a requirement that no trust assets may be used or diverted for any purpose other than the exclusive benefit of the participants and beneficiaries of participating plans).
 The Trust received this determination letter on March 13, 2013.
 The term “Underlying Trust” in this letter refers only to Underlying Trusts that seek to rely on the assurances contained in this letter. It is our understanding that you make no representations and request no relief with respect to any BCT that is not seeking to rely on such assurances.
 In the interest of clarity, we note that you ask for no-action assurance with respect to Puerto Rico-Only Plans, but not with respect to plans that serve both U.S. and Puerto Rico participants pursuant to ERISA Section 1022(i)(2) (such plans, “Dual PR/US Plans”). You suggest that Dual PR/US Plans are not discussed in Revenue Ruling 2014-24 or in any of the related revenue rulings because Section 1022(i)(2) requires the employer to elect to have Title II of ERISA (containing Section 401(a) qualification requirements) apply, and further provides that upon the effectiveness of such an election, “any trust forming a part of such plan shall be treated as a trust created or organized in the United States for purposes of section 401(a) of the [Code]”.
 As relevant here, Section 3(c)(11) of the 1940 Act excludes from the definition of investment company: “Any employee’s stock bonus, pension or profit-sharing trust which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1986; or any governmental plan described in section 3(a)(2)(C) of the Securities Act of 1933; or any collective trust fund maintained by a bank consisting solely of assets of one or more of such trusts, government plans, or church plans, companies or accounts that are excluded from the definition of an investment company under paragraph (14) of this subsection; or both; . . .”. Section 3(a)(2) of the 1933 Act exempts from registration: “. . . 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, which interest, participation or security is issued in connection with (A) a stock bonus, pension, or profit-sharing plan which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1954 . . .” Section 12(g)(2)(H) of the 1934 Act exempts from the registration requirements otherwise applicable under Section 12(g)(1) of the 1934 Act: “any interest or participation in any collective trust funds maintained by a bank or in a separate account maintained by an insurance company which interest or participation is issued in connection with (i) a stock-bonus, pension, or profit-sharing plan which meets the requirements for qualification under section 401 of the Internal Revenue Code of 1954, (ii) an annuity plan which meets the requirements for deduction of the employer’s contribution under section 404(a)(2) of such Code, or (iii) a church plan, company, or account that is excluded from the definition of an investment company under section 3(c)(14) of the Investment Company Act of 1940.”
 See Equitable Life Assurance Society of the United States, SEC Staff No-Action Letter (Dec. 8, 1980); New England Mutual Life Insurance Co., SEC Staff No-Action Letter (Mar. 13, 1981); Massachusetts Mutual Life Insurance Co., SEC Staff No-Action Letter (Feb. 14, 1983) .
 For the avoidance of doubt, this no-action assurance applies solely to the eligibility of Puerto Rico-Only Plans, and does not apply to any other category of tax-favored retirement plans or other asset class permitted to invest in 81-100 Group Trusts.