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.

I. Background

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.[1] 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.[2]

The Trust and certain other BCTs in which the Trust seeks to invest (the “Underlying Trusts”)[3] 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.[4]

II. Discussion

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.[5] 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.[6] 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.

III. Conclusion

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.[7] 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
Senior Counsel
Division of Investment Management