DIVISION OF 

TRADING AND MARKETS 

COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20581 

- T&r-1 No. 87-11 

December 4, 1987 

Re: CPO Relief for the Board of a Church Plan. 

Dear 

This is in response to your letter dated July 7, 1987, as supplemented 

by your letter dated Novanber 2, 1987 and telephone conversations a:rrong you 

and your associate and Division staff, wherein you requested on behalf of the 

Board of "X" Church relief fran ccmrodity pool ope_rator ("CPO") regulation 

with respect to its operation of certain employee retireroont plans (the 

"Plans"). 

Based upon the representations made in your July 7 letter, as supplerrented, we understand the facts to be as follows: 

The Board 

The Board was incorporated in [the early 1900s] by 

a special Act of the State of New York for the 

purpose, a:rrong others, of providing retireroont 

benefits to ministers and missionaries of the- "X" 

denomination (the "denomination"). [Subsequently,] 

the Board' s Act of Incorporation was aroonded to 

enable the Board to extend such benefits to the 

denanina.tion 1 s lay arployees. The Board is one of 

[several] Related Boards of [the Church] • o • • 

The closeness of the relationship between the 

Board and the Church is illustrated by the fact 

that, under the Board's Act of Incorporation and 

By-Laws, all but three of the Board's 20 Managers 

(i.e. , directors) are elected by the Church 1 s 

General Board or by the other Related Boards o The 

three remaining Managers of the Board are elected, 

by the members of the Board, fran the general 

public on the basis of particular skills helpful 
Page 2 

to the Board in perfonning its functions. The 

Board presents a written annual report to the 

Church, and the Church has the power to instruct 

the Board in respect to its general policies. • • • 

Each proposed amendment to the Board 1 s By-Laws is 

required to be provided to the Church • • • at 

least 15 days prior to the date of the rreeting at 

which a vote is taken. • 

Accordingly, although it is separately incorporated, the Board is an integral part of the 

Church. As such, and on the basis of the Board 1 s 

own purposes and operations, the Board is exenpt 

from Federal income taxation as a religious 

organization described in Section 50l(c) (3) of the 

Internal Revenue Code of 1986, as amended. • . • 

The Plans 

[T] his letter relates to three defined contribution 

retirement plans which are maintained by the 

Board •••• 

Each of the Plans is both a "pension plan" and a 

"church plan" within the meaning of Sections 3 (2) 

and 3 (33) , respectively, of the Enployee Retirerrent Income Security Act of 1974, as curended 

("ERISA") • As church plans, the Plans are exercpt 

fran the requirements of Titles I and IV of ERISA. 

ERISA §§4 (6) (2) , 4021 (b) (3) • 

The first plan is the basic retirement program of 

the denanination and provides variable annuities 

based upon individual accounts of the participating 

members. Contributions to this plan are made by 

the employing churches and other affiliated 

organizations of the Church on behalf of their 

participating erployees. There are approximately 

4,000 participating employer organizations ••• 

and approximately 11,460 participants •••• 

Since this plan is noncontributory, the Board 

established two supplemental retirernent 

programs • • • to enable participants to elect to 

set aside fran their salaries, on a tax-deferred 

basis, additional arrounts for their retirement. 

There are approximately 1, 282 participants in one 

[and] there are 195 participant accounts in the 

other. 

--· -
Page 3 

••• [As of December 31, 1986] [t]he total assets 

of the three Plans amounted to $627,222,908. A 

portion ($619,676,990) of these assets, along with 

a portion ($135,459,740) of the assets of the 

Board that are held for its other purposes, have 

been canbined for invesbnent purposes in a 

Fimd. • • . The total assets of the Fund mrounted 

to $755,136,730 as of December 31, 1986 •••• 

The Finance Carmittee of the Board appoints the 

invesbnent managers, rroni tors their performance, 

detennines the portion of the Fund that is to be 

managed by each manager, d.etennines the investrrent 

objectives and guidelines to be follCMed by the 

managers and detennines the portion of each 

manager's account that is to be invested (within 

specified limits) in fixed incare, equity or other 

types of invesbnent. 

After study of the potential uses of_f!nancial 

futureS and optiOnS 1 One investlrent manager haS 

recarmended that such instruments be included in 

the fixed incare portion of the account which it 

manages for the Board. At December 31, 1986, such 

account consisted of a portfolio of stocks, bonds 

and cash equivalents having a fair market value of 

approximately $180,000,000. Of this amount, 

approximately 31 percent was represented by fixed 

incare investirents. The invesbnent manager 

believes that the use of such futures and options 

could help to limit interest rate risk in the 

Board's bond portfolio. It believes that the 

Board will not incur greate..r risk through the use 

of financial futures or options than would normally 

be incurred in a portfolio corrposed of cash-market 

securities exclusively. • • • 1/ 

As you are aware, Rule 4.5, 17 C.F.R. §4.5 (1987), provides relief 

from CPO regulation for the eligible persons named therein with respect to 

their operation of certain qualifying entities. This reliefgenerally is 

]:_! For the purpose of this letter we have not made any detennination on the 

relative risJr.s of the Board' s conterrplated camodi ty interest trading. 

Accordingly, the position we have taken below should not be construed to 

i.nply any such detennination. 
Page 4 

effective upon the filing of a notice of eligibility with the Commission, 

which Imlst contain certain representations on how the qualifying entity will 

be operated -- ~·, that it will ccmnit no nore than five percent of its 

assets to initiate its ccmrodity interest positions and that those positions 

will be "bona fide hedging transactions and positions" or, with respect to 

certain long positions, will be incidental to the qualifying entity' s 

activities in the underlying cash market. 

Specifically, Rule 4.5(a) (4) makes this relief available for the 

trustee or named fiduciary of a pension plan that is subject to Title I of 

ERISA with respect to its operation of such plan. Rule 4.5 (a) (4) further 

provides, hc:Mever, that certain pension plans are not can:rodi ty pools and, 

thus, that no notice of eligibility needs to be filed -- i.e. , the relief 

provided by the rule is self-executing and is not subject to any operating 

criteria. Those plans are as follCMs: (i) a noncontributory plan covered 

under Title I of ERISAi (ii) a contributory defined benefit plan covered 

under Title IV of ERISA.i and (iii) a plan defined as a governmental plan in 

Section 3(32) of Title I of ERISA. But because, as is noted above, as church 

plans the Plans are exempt fran the requirements of Titles I and IV of ERISA, 

neither the fiduciary or named trustee of any Plan is eligible to clabn 

relief fran CPO regulation under Rule 4.5 (a) (4) nor is any Plan eligible for 

exclusion fran the pool definition under either J;ru1e 4.5 (a) (4) (i) or Rule 

4.5 (a) (4) (ii). Accordingly, you have requested that we exclude the Plans 

fran the pool definition on grounds similar to those under Rule 4.5 (a) (iii) 

upon which the Ccmnission excluded certain govenurental plans: considerations 

of federalism. As the Carmission stated in adopting that exclusion: 

State and local govenurents nust be allCMed to 

make their own determination of the best method to 

protect the pension rights of municipal and state 

employees. These are questions of state and local 

sovereignty and the Federal government should not 

interfere. 50 Fed. Reg. 15868 at 15873 (April 23, 

1985) (quoting 1 Legislative History of the 

Elrployee Retiremmt Incate Security Act of 1974, 

97th Cong., 2d Sess. 224 (Carom. Print 1976)). 

In support of the requested relief, by your Novanber 2 letter you 

represented the follov;ring: 

With respect to the ERISA church plan exemption, 

there appears to be only one statement in the · 

pre-enactrrent legislative history regarding the 

reasons underlying the exemption. Such statement 

••. explains why church plans were not made 

subject to the plan tennination insurance system 

established by Title IV of ERISA •••. 
Page 5 

Follcming the enactrrent of ERISA, it became 

apparent to many churches that the ERISA language 

defining an exempt church plan was so narrowly 

drafted that many church plans \'lOuld be unable to 

comply with such language [and] ••• church plans 

would be prevented fran covering many ministers 

and lay workers who were engaged in carrying on 

the work of the church as arployees of denaninational agencies. • • • 

[C] larifying legislation was enacted in 1980 as 

Section 407 of the Multianployer Pension Plan 

Amendments Act of 1980 (P.L. 96-364, 96th Cong., 

2d Sess. ) ( "MPPA11 ) • • • • 

In 1978, in introducing the House bill which was 

the predecessor to Section 407 of MPPA, Representative Barber Conable stated: 

In 1974 when we enacted the Employee 

Retirem:mt Incare Security Act of 1974, 

popularly called ERISA, we exarpted 

church plans fran the provisions of the 

act to avoid excessive Goverrnrent 

entanglement with religion in violation 

of the first amendlrent to the Constitution. 

Mr. Speaker, I ·believe that when we 

enacted ERISA, we required far :rrore of 

our churches than we intended. We 

certainly did not in 1974 intend to 

draft a definition of church plan that 

fails to take into consideration the way 

our church plans are operated or that is 

disruptive of church affairs. 124 Cong. 

Rec. 12,108 (1978) (emphasis added). 

A similar bill was introduced in the Senate in 

1978. Because Congress did not act upon the House 

and Senate bills prior to its adjournment in 1978, 

the bills were reintroduced in the House and the 

Senate when the new congress convened in 

1979. • • . In explaining the purpose of the bill 

to the Senate, Senator Talmadge stated: 

Mr. President, these and other problans 

over the church plan definition under 
Page 6 

present law confront the churches today. 

They are worried that their plans do not 

nCM xreet the church plan requirements 

and concerned over the inpending restructuring of their plans. It is time we 

rerrove the churches fran this statutory 

cloud. If we have enacted a statute 

that may require the church plans to 

care under ERISA, file reports, be 

subject to the examination of books and 

records and possible foreclosure of 

church prgeerty to satisfy plan liabilities, it ImlSt be Changed because we 

have clearly created an excessive 

Government entanglement with religion. 

125 Cong.· Rec. at 10,052 (1979) (emphasis 

added). 

On Decanber 4, 1979, hearings on the Senate bill 

were held before the SUboammittee on Private 

Pension Plans and Employee Fringe Benefits of the 

Carmittee on Finance of the Senate •.. Sfulator 

Talmadge' s statement in support of the bill 

included the following: 

In drafting the Ertployee Retirenent 

InC<J~re Security Act of 1974, which is 

called ERISA, Congress recognized that 

there were serious Constitutional 

objections. to subjecting the churches, 

through their plans, to the examination 

of books and records and possible levy 

on church property to satisfy plan 

liabilities. As a consequence, "church 

plans" were excluded fran the purview of 

ERISA. Hearings on S. 209, Etc. Before 

the SUbccmn. on Private Pension Plans 

and Employee Fringe Benefits of the 

Senate Cam\. on Finance, 96th Cong., 1st 

Sess. 364 (1979). 

Based upon the foregoing, we believe that relief from' CPO regulation 

is appropriate with respect to the instant case. But because tl12.. Plans are 

not anong those specified in Rule 4.5 (either as being qualifying entities or 

excluded fran the pool definition) and, further, because the Plans will not 

be operated pursuant to the criteria of Rule 4.5 (c) (2), we are declining to 

make the relief available under Rule 4. 5 available to the Board and the 
Page 7 

Plans. 2/ Rather, the Division will not reccmrend. that the carmi.ssion take 

any enforcement action against the Board of the "X" Church if it fails to 

register as a CPO in connection with its operation of the Plans. This 

position is, however, subject to compliance with the condition that the Board 

indicate in each Plan's docu!rents that, as a result of its request for 

relief, it is neither req,uired to register as a CPO nor is it subject to the 

operating criteria of Rule 4. 5. 

You should be aware that the "no-action" position taken by this letter 

does not excuse the Board fran cal'pliance with any otherwise applicable 

requireroonts contained in the CcmtOOi ty Exchange Act or in the carmi.ssion' s 

regulations thereunder. For example, it remains subject to Section 4o of the 

Canrodi:Ly Exchange Act, 7 U.S.C. §6o (1982), and to the reporting requirements 

for traders set forth in Parts 15 and 18 of the Commission's regulations, 17 

C.F.R. Parts 15 and 18 (1985). 

The position taken by this letter is based on the representations that 

have been made to us and is subject to cal'pliance with the condition set 

forth above. Fmy different, changed or anitted facts or conditions might 

require us to reach a different conclusion. In this connection, we request 

that you notify us imnediately in the event any Plan' s operation changes in 

any way fran that as represented in yoo.r letter c;ma in your telephone conversations with Division staff. 

BSG/md 

Very truly yours, 

Andrea M. Corcoran 

Director 

cc: Daniel A. Driscoll, National Futures Association 

2/ Carpa.re Division of Trading and Markets Interpretative Letter No. 87-3, 

Calm. Fut. L. Rep. (CCH) ~23, 730 (July 14, 1987), where we found that the 

insurance canpany at issue would cane within Rule 4.5; catpa.re also 

Division Interpretative Letter No. 85-8, Ccmn. Fut. L. Rep. ~22, 728 

(February 8,1985), which extended the relief proposed under Rule 4.5 to a 

private investment cal'panY.