I , ' ~ 

COMMODITY fUTURES TRADING COMMISSION 

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

(202) 254-8955 

(202) 254-3534 FACSIMILE 

DIVISION OF 

TRADING AND MARKETS ' 

I, 

.. 

May 20, 1992 

< .. · \ · ..· 

Re: Death Benefit Fund of the 

Dear 

This is in response to your letter dated August 1, 1991, to 

the Division of Trading and Markets (the "Division"), as 

supplemented by telephone conversations with Division staff, in 

which you requested on behalf of the Board of Trustees (the 

"Board") of the Death Benefit Fund (the "Fund") of the 

union ( " ") relief 

from regulation as a commodity pool operator ("CPO"). 

Based upon your letter, as supplemented, we .understand the 

facts to be as follows. The Fund is a death benefit plan 

administered by the Board, which is comprised of officials of the 

and various local unions. The Fund provides death 

benefits in fixed amounts to designated beneficiaries of active 

employees and retirees of the and its local unions. The 

Board, on behalf of the F~nd, desires to invest assets of the 

Fund ~n the trading of commodity interests solely for bona fide 

hedging pur~oses within the meaning and intent of Rule 

1. 3 ( z) ( 1) .17 At no time will the Board enter into futures and 

options contracts for which the aggregate initial margin and 

premiums will exceed five percent (5%) of the fair market value 

of the Fund's assets, after taking into account unrealized 

profits and unrealized losses on any such contracts it has 

entered into. Future participation in the Fund will not be 

offered to the public, as a means of engaging in commodity 

futures trading or otherwise. 

The Fund is currently fully funded and is accepting no 

additional contributions. Additional contributions could be made 

in the future, although none are currently anticipated. Existing 

Fund assets derive from the following sources: (i) contributions 

l/ Commission rules referred to herein are found at 17 c.F.R. 

Ch . I ( 19 91 ) . 
'' /. 

Page 2 

by active employees; (ii) contributions by local unions on behalf 

of both acti~e employees and retirees; and (iii) contributions by the regional and local multiemployer health and welfare plans affiliated with the · 

The Fund may reinstate assessments in the future if 

necessary. The plan document for the Fund provides that the 

contributions (when not suspended by the Fund) by active 

employees come from their union dues, a portion of which is paid 

into the Fund. Participation in (and hence contributions to) the 

Fund are mandatory for all members of local unions. The 

amount payable to a participant's beneficiary as a death benefit 

from the Fund is fixed by the plan document (generally, a flat 

benefit of ten thousand ·dollars, plus additional benefits for 

accidental death and for children, plus funeral expenses). The 

death ~enefit is never contingent on the performance of the Fund. 

Before payments into the Fund were suspended the plan document 

permitted an optional additional contribution from pa~ticipants, 

leading to a higher (also fixed) death benefit. Finally, the 

death benefit generally is vested once the participant completes 

two continuous years of dues-paying membership. 

The Fund is not a pension plan, since its main purpose is 

not to provide pension-related benefits. Nonetheless, like a 

pension plan, the Fund is subject to Title I of the Employee 

Retirement Income sec~1;ity Act of 1974, as amended ("ERISA"), 29 

U.S.C. § 1001 et seq.-/ 

ERISA requires, with respect to the Fund, preparation of a 

"summary plan description" which must be provided to employees 

and retirees receiving benefits under the Fund and filed with the 

Department of Labor. A separate "plan description" and "annual 

report," and information regarding changes in or modifications to 

the Fund, must also be filed with the Labor Department (a summary 

of the "annual report" is provided to employees and retirees 

receiving benefits under the Fund) • These reporting and 

disclosure requirements are subject to criminal enforcement 

penalties under the law. The fiduciaries of the Fund are 

likewise subject, in their capacities as fiduciaries, to the 

fiduciary responsibility provisions of ERISA, and are personally 

liable for any losses the Fund suffers as a result of breaching such responsibilities. 

As you are aware, Rule 4.5(a) specifically excludes from the 

definition of a "pool" the following pension plans: 

(i) noncontributory plans covered under Title I of ERISA; 

1/ There are certain differences in the applicability of Title 

I to pension benefit plans and to welfare benefit plans. 
,. . 

Page 3 

(ii) 

(iii) 

contributory defined benefit plans covered uhder Title 

IV of ERISA, with certain limitations; and 

governmental plans as defined in Section 3(32) of 

Title I of ERISA. 

In addition, by Rules 4.5(a) (4) and 4.5(b) (4), the 

commission has excluded from the definition of "commodity pool operator" set forth in Section 2(a) (1) (A) of the commodity 

Exchange Act (the "Act''), 7 u.s.c. S 2(a) (1) (A) (1988), the 

trustee or named fiduciary of any pension plan subject to Title I 

of ERISA provided that such trustee or named fiduciary files a 

notice af eligibility with the commission representing that it 

will conduct its trading in. commodity ihterests in accordance 

with certain requirements specified in Rule 4.5(c) (2). Because 

the Funtl is not among the trading vehicles specified in Rule 4.5, 

the relief available under the rule is not available to the Board 

and the Fund. 

However, based upon your representations, the Division has 

determined that it will not recommend that the Commission take 

any enforcement action for failure to register as a CPO against 

the Board in connection with its operation of the Fund. This noaction position is based upon your representations that: (1) the 

death benefit is never contingent on the performance of the Fund; 

(2)" although the Fund is not a pension fund eligible for relief 

under Rule 4.5, it is similar to such funds in that it is subject 

to Title I of ERISA; (3) the Fund intends to trade commodity interests solely for bona fide hedging purposes; (4) at no time 

will the Board enter into futures and options contracts for which 

the aggregate initial margin and premiums exceed five percent 

(5%) of the fair market value of the Fund's assets; after taking 

into account unrealized profits and unrealized losses on any such 

contracts it has entered into; and (5) the Board has not offered 

nor does it propose to offer participation in the Fund to the 

public as or in a commodity pool or otherwise as or in a vehicle 

for trading in the commodity futures and commodity options 

markets. This no-action position is conditioned upon the Fund's 

making the disclosure required by Rule 4.5(c) (2) (iv) in the 

annual report to be filed with the Department of Labor and the 

summary of annual report to be provided to employees. This 

disclosure should include representations numbered (3) and (4) 

above. This no-action position is also conditioned upon the 

Board's submitting to such special calls as the commission may make to demonstrate that the Fund is operating according to the 

representations set forth in this paragraph. . 

We note that this letter does not excuse the Board from 

compliance with any otherwise applicable requirements contained 

in the Act, or in the commission's regulations thereunder. For 

example, it remains subject to the antifraud provisions of 
Page 4 

Section 4Q of the Act, 7 u.s.c. § 6Q (1988), and to the reporting 

requirements for traders set forth in Parts 15, 18 and 19 of the 

regulations. 

This letter is based upon the information that has been 

provided to us and is subject to compliance with the conditions 

stated above. Any different, changed or omitted facts or 

conditions might require us to reach a different conclusion. In 

this connection, we request that you notify us in the event that 

the Fund's operations, including membership composition and the 

source of capital contributions, change in any way from those as 

represented to us. · 

Finally, this position is that of the Division of Trading 

and Markets only and does not necessarily represent the views of 

the Co~ission or any other office or division of the Commission. 

If you have any questions concerning the foregoing, please 

call me or carla Behnfeldt, an attorney on my staff, at {202) 

254-8955. 

Very truly yours, 

~/11. ~)f<L Andrea M. Corcoran 

Director