While a Securities and Exchange Commission (SEC) staff statement carries no force of law, it does signal staff thinking on an issue. In this case, the SEC’s Division of Investment Management is signaling that a pooled employer plan (PEP) can invest in a collective investment trust (CIT) without running afoul of the single trust exclusions in the Investment Company Act or the Securities Act’s Section 180.

On May 4, the SEC Division of Investment Management issued a staff statement explaining their thinking on the potential for PEPs investing in CITs. After an analysis of the applicable securities and pension laws and regulations, the staff statement said that in its view the applicability of the single trust exclusion of the Investment Company Act and Section 180 of the Securities Act would not prevent PEPs from accepting self-employed individuals or refraining from investing in a CIT.

There has been some concern in the PEP community that a PEP with self-employed members might be subject to SEC regulation due to the single trust exclusion rules. The staff statement points out that the historical interpretation of the single trust exclusion has been based on the presence of “a trust for employees of a single employer; a trust fund for employees of employers so closely related as to be regarded as a single employer (e.g., a parent and its subsidiaries); and a trust fund established and controlled by employers and/or a union representing the employees of such employers.” A PEP does not fall into any of these categories, the staff statement noted. “Accordingly,” the staff statement said, “the staff would not object if a pooled employer plan treats itself as a single employer plan for purposes of the single trust exclusion….and thus avoids registration as an investment company provided that the pooled employer plan is subject to ERISA and meets all the requirements” of the Investment Company and Securities Acts.

In summary, the staff statement says, “For these reasons, the staff would not object if a CIT issues interests to a pooled employer plan that covers self-employed persons without registering the offer and sale of the CIT’s interests under section 5 of the Securities Act in reliance on rule 180; provided that the plan: (i) is subject to ERISA; and (ii) the issuance meets all of the requirements in rule 180(a)(1) and (a)(3). The staff understands that ERISA requires the pooled plan provider to provide most of the administrative and fiduciary responsibilities with respect to that plan, effectively assuming the role of the employer. As such, the staff takes the view that a CIT may apply the rule’s sophistication requirement with respect to the plan’s pooled plan provider, rather than any employer, to confirm that the provider is able to adequately represent the interests of plan participants.

“We note that CIT interests eligible to rely on rule 180 remain subject to the Securities Act’s anti-fraud provisions.https://www.sec.gov/newsroom/speeches-statements/im-staff-statement-pooled-employer-plans-050426 In addition, our position in this statement applies equally to any other investment option issued to a pooled employer plan that would otherwise qualify for the rule 180 exemption, including any interest or participation in a single trust fund or any security arising out of a contract issued by an insurance contract. Further, this statement focuses on the availability of rule 180 to interests in CITs issued to certain pooled employer plans, not on the interests in pooled employer plans issued to participants. For those interests, a pooled employer plan—like any other employee benefit plan—may rely on available exemptions from the Securities Act’s registration requirements, including rule 180(b), provided the plan satisfies the conditions of the applicable exemption.”

The statement emphasizes that these views are not law or regulation. It states, “This staff statement represents the views of the staff of the Division of Investment Management. It is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved its content. This staff statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person. Future changes in rules, regulations, and/or the staff’s no‑action and interpretive positions may supersede some or all of the information in a particular staff statement.”

Prospects: This staff statement is good news for NAIFA members with PEP clients who are interested in investing in a CIT. It is not a guarantee, of course, but it is a solid signal of the acceptability of such an investment by a PEP with self-employed members.

NAIFA Staff Contacts: Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.