Collective Investment Funds

Background

A CIF is a bank-administered trust that holds commingled assets that meet specific criteria established by 12 CFR 9.18. Each CIF is established under a “plan” that details the terms under which the bank manages and administers the fund’s assets. The bank acts as a fiduciary for the CIF and holds legal title to the fund’s assets. Participants in a CIF are the beneficial owners of the fund’s assets. While each participant owns an undivided interest in the aggregate assets of a CIF, a participant does not directly own any specific asset held by a CIF.

CIFs are designed to enhance investment management by combining assets from different accounts into a single fund with a specific investment strategy. By commingling, or pooling, fiduciary assets, a bank may lower the operational and administrative expenses associated with investing fiduciary assets and enhance risk management and investment performance for the participating accounts.

A fiduciary account’s investment in a CIF is called a “participating interest.” Like other fiduciary assets, participating interests in a CIF are not FDIC-insured and are not subject to potential claims by a bank’s creditors. In addition, a participating interest in a CIF cannot be pledged or otherwise encumbered in favor of a third party.

Many banks establish CIFs as an investment vehicle for their smaller personal trusts or for employee benefit (EB) accounts. By using a CIF, a smaller trust may obtain investment diversification that would otherwise be difficult to achieve. From the bank’s perspective, CIFs allow the bank to avoid costly purchases of small lot investments for its smaller fiduciary accounts.

A bank may collectively invest assets of personal fiduciary accounts when either the bank or an affiliate bank serves as the account’s trustee, executor, or administrator. The bank may also collectively invest assets of EB accounts such as a retirement, pension, profit-sharing, or stock bonus plans.

12 CFR 9.18 authorizes two general types of CIFs. The first is authorized under section 9.18(a)(1) and is maintained “exclusively for the collective investment and reinvestment of money contributed to the fund by the bank, or by one or more affiliated banks, in its capacity as trustee, executor, administrator, guardian, or custodian under a Uniform Gifts to Minors Act.” This type of fund is generally referred to as an “A1 fund.”

The second type of CIF is authorized under section 9.18(a)(2) and is “a fund consisting solely of assets of retirement, pension, profit sharing, stock bonus or other trusts that are exempt from federal income tax.” This type of fund is generally referred to as an “A2 fund.”

In addition to A1 and A2 Funds, section 9.18(c) authorizes other collective investments for national banks to the extent not prohibited by applicable law. A national bank may also request authority from the OCC to establish a “special exemption fund.” These funds are either A1 or A2 funds and contain either a novel investment provision or are otherwise inconsistent with one or more provisions of section 9.18(b). These and other types of CIFs are discussed more thoroughly in appendix A, “Types of Collective Investment Funds.”

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