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CCH® PENSION AND BENEFITS — 10/12/06

Trust company subsidiary of bank covered by bank collective investment fund PTE

A bank's wholly-owned subsidiary, which is a trust company that is trustee for collective investment funds in which employee benefit plans invest, will be considered a bank for purposes of the prohibited transaction exemption covering bank collective investment funds, according to an Employee Benefits Security Administration (EBSA) Advisory Opinion. Under PTE 91-38, a bank collective investment fund is generally permitted to engage in certain transactions with a party in interest with respect to a plan, if the party in interest is not the bank that maintains the funds, so long as the plan's participation in the collective investment fund does not exceed a specified percentage of the total assets in the collective investment fund (see CCH Pension Plan Guide ¶16,634).

Various trust agreements authorized the trust company to delegate some investment functions, such as advisory services, to an affiliate, which is also a subsidiary of the bank that owns the trust company. The affiliate is a registered investment adviser, and is required to make recommendations and decisions in accordance with fund documents. EBSA's decision to apply the exemption to the trust company was based on the fact that the trust company is regulated by both the Office of Thrift Supervision (OTS) and the Office of Comptroller of the Currency (OCC) in the same manner that the OTS and the OCC regulate the bank which owns the subsidiary, and the OTS has granted trust and fiduciary powers to the trust company. Furthermore, the trust company remains at all times fully responsible for all management and operation of the investment funds.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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