ERISA-DOL Advises That Assets of Target-Date or Lifecycle Mutual Funds, Which Consist Of Shares Of Affiliated Mutual Funds, Are Not “Plan Assets”

In Advisory Opinion 2009-04A, the Department of Labor (the “DOL”) was faced with the questions of whether the assets of “target-date” or “lifecycle” mutual funds (“Funds”) constitute “plan assets” of employee benefit plans which invest in the Funds, and whether the Funds’ investment advisers would be considered fiduciaries of the investing employee benefit plans under ERISA. The Funds’ assets typically consist of shares of affiliated mutual funds. In answering these questions, the DOL assumed that the Funds are investment companies registered under the Investment Company Act of 1940 “(Registered Investment Companies”).

The DOL noted that, under Section 3(21)(B) of ERISA, the investment of an employee benefit plan in a Registered Investment Company does not, by itself, cause such company or its investment adviser to be a fiduciary (or a party in interest) of the investing plan for purposes of Title I of ERISA. Also, under Section 401(b)(1) of ERISA, when an employee benefit plan invests in a share of a Registered Investment Company, the assets of the investing plan will include that share, but not any of the assets of that company.

The DOL said that, in its view, nothing in ERISA Section 3(21)(B) or Section 401(b)(1) suggests that a Registered Investment Company’s investment in the shares of affiliated mutual funds would, by itself, affect the application of those Sections. Thus, the DOL concluded that the fact that a Fund’s assets consist of shares of affiliated mutual funds does not, by itself, make the assets of the Fund “plan assets” of an employee benefit plan which invests in the Fund, or make the Fund’s investment advisers fiduciaries of the investing employee benefit plan under ERISA.

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