Tuesday, July 19, 2011

House Passes Legislation Expanding Securities Law Exemption for Church Pension Plans to Invest in Collective Trusts

The House passed legislation broadening and clarifying an exemption in the federal securities laws allowing church pension plans to invest in collective trusts. The vote was 310-1. The Church Plan Investment Clarification Act. HR 33. broadens the exemption to church pension plans funded by tax-deferred annuities and plans that do not include self-employed individuals. The House Committee Report, No. 112-131, accompanying HR 33 noted that, at congressional hearings earlier this year, Meredith Cross, Director of the Corporation Finance Division, indicated that the SEC wholeheartedly embraced the idea that participants in a church plan should have the same opportunities as participants in other plans and that there should not be regulatory obstacles to such investment, although the Commission itself had not officially adopted a position on the bill.

During the 108th Congress, legislation, P.L. 108-359, was passed amending the Investment Company Act to exclude from the definition of investment company any collective trust fund maintained by a bank consisting solely of certain church pension plans, companies, or accounts specified in the Internal Revenue Code. The legislation also amended the Securities Act and the Securities Exchange Act to exempt such church pension plans, companies, or accounts from regulation under such Acts, including registration requirements. H.R. 1533 passed the house on suspension 397-0, and later became

Unfortunately, Public Law 108-359 failed to exempt church plans not funded by tax-deferred annuities or plans that did not include self-employed individuals. The 1933 Act church plan exemption failed to remove these two conditions for church plans, which is the only place that the collective trust exemptions do not provide parallel treatment among the various securities laws. H.R. 33 would fix that omission by amending the Securities Act by inserting language that provides for an exemption for a church plan established under Section 403(b)(9) of the Internal Revenue Code to invest in a collective trust. In addition, because of the unique tax treatment of clergy and lay workers who participate in their denominational pension plans, this section clarifies that the exemption allows them to invest in collective trusts.