Opinion ID: 109975
Heading Depth: 2
Heading Rank: 2

Heading: Expectation of Profits From a Common Enterprise

Text: As we observed in Forman, the touchstone of the Howey test is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. 421 U. S., at 852. The Court of Appeals believed that Daniel's expectation of profit derived from the Fund's successful management and investment of its assets. To the extent pension benefits exceeded employer contributions and depended on earnings from the assets, it was thought they contained a profit element. The Fund's trustees provided the managerial efforts which produced this profit element. As in other parts of its analysis, the court below found an expectation of profit in the pension plan only by focusing on one of its less important aspects to the exclusion of its more significant elements. It is true that the Fund, like other holders of large assets, depends to some extent on earnings from its assets. In the case of a pension fund, however, a far larger portion of its income comes from employer contributions, a source in no way dependent on the efforts of the Fund's managers. The Local 705 Fund, for example, earned a total of $31 million through investment of its assets between February 1955 and January 1977. During this same period employer contributions totaled $153 million. [14] Not only does the greater share of a pension plan's income ordinarily come from new contributions, but unlike most entrepreneurs who manage other people's money, a plan usually can count on increased employer contributions, over which the plan itself has no control, to cover shortfalls in earnings. [15] The importance of asset earnings in relation to the other benefits received from employment is diminished further by the fact that where a plan has substantial preconditions to vesting, the principal barrier to an individual employee's realization of pension benefits is not the financial health of the fund. Rather, it is his own ability to meet the fund's eligibility requirements. Thus, even if it were proper to describe the benefits as a profit returned on some hypothetical investment by the employee, this profit would depend primarily on the employee's efforts to meet the vesting requirements, rather than the fund's investment success. [16] When viewed in light of the total compensation package an employee must receive in order to be eligible for pension benefits, it becomes clear that the possibility of participating in a plan's asset earnings is far too speculative and insubstantial to bring the entire transaction within the Securities Acts, Forman, 421 U. S., at 856.