EBSA Press Release: Labor Department Proposal Allows Conversion Of Plan Investments To Mutual Funds [11/14/1996]

Archived News Release — Caution: Information may be out of date.

For more information call: (202) 219-8921

Employee benefit plans could save millions of dollars in brokerage fees under a U.S. Labor Department proposal that would allow the transfer of benefit funds from bank investments to bank-affiliated no-load mutual funds, a transaction currently prohibited except through exemption from the Employee Retirement Income Security Act (ERISA).

The proposal for an exemption from ERISA is now up for public comment and was carried in yesterday's Federal Register. It was prompted by a request from Federated Investors, a mutual fund sponsor. If the exemption is adopted, Federated contends employee benefit plans will save fees normally incurred when plan assets are converted from collective investment funds to mutual funds. Many banks have been switching from collective to mutual funds.

The department's proposed exemption would allow federal or state banks to convert collective funds into mutual funds if:

• the bank discloses information about the mutual fund and the conversion process, including why the exchange of investments is appropriate for the plan;
• an independent plan fiduciary gives the bank advance written authorization for each transfer of CIF assets in exchange for shares of a mutual fund;
• plan clients pay no commissions or other fees in connection with the purchase of mutual fund shares;
• written confirmation is provided to the independent plan fiduciary within 105 days of the transactions;
• within 30 days information is furnished which discloses the identify of each security not listed on a national exchange or NASDAQ and the identity of the pricing service or market-maker contacted to determine the value of such securities;
• combined total fees received by a bank from a client plan for services received cannot exceed reasonable compensation;
• the value of mutual fund shares received by a plan equals the current market value of its pro-rata share of assets in the CIF on the date of the exchange; and
• the independent plan fiduciary receives ongoing disclosure of information such as an updated prospectus and a report or statement of fees paid to the bank.

The proposed exemption is in the Nov. 13 Federal Register or via the Internet at http://www.dol.gov/dol/pwba after Nov 20. Public comments or requests for a hearing should be submitted in writing to the Office of Exemption Determinations, Pension and Welfare Benefits Administration, Room N-5649, 200 Constitution Avenue N.W., Washington, DC 20210, (Attention: "CIF Conversion Class Exemption").

Archived News Release — Caution: Information may be out of date.