Collective Investment Funds

Valuation – 9.18(b)(4)

A bank administering a CIF must determine the market value of the fund’s assets at least once every three months. Valuation dates must be established by the fund’s written plan. If the bank cannot readily ascertain the market value of a particular asset, the bank shall use a “fair value” determined in good faith.

This section includes an accommodation for CIFs that are invested in assets such as real estate or private equity securities — that is, securities that are not readily marketable. A bank is required to determine the value of those assets only once each year, rather than quarterly.

Short-term investment funds (STIF).

A bank may value a STIF’s assets on a cost basis, rather than at market value, for purposes of admissions and withdrawals, provided that the fund:

Maintains a dollar-weighted average portfolio maturity of 90 days or less;
Accrues on a straight-line basis the difference between the cost and anticipated principal receipt on maturity; and
Customarily holds the fund’s assets until maturity.

The OCC’s STIF valuation provisions are based upon the SEC’s Money Market Fund Rule 2a-7, which interprets provisions of the ’40 Act.

Guaranteed investment contracts (GICs) and synthetic investment contracts (SICs). In Interpretive Letter No. 716 (1995), the OCC modified valuation requirements for CIFs that purchase GICs and SICs.^[5] GICs and SICs are contracts that have almost no liquidity because the contract terms generally prohibit their transfer. GICs are individually negotiated investment contracts between insurance companies and investors. SICs are individually negotiated investment contracts that provide cash flow protection for assets or pools of assets to investors who own those assets and who must sell those assets to pay plan participants.

Consistent with accounting guidance, Interpretive Letter 716 permits CIFs consisting solely of defined contribution plan assets (rather than defined benefit plan assets) that are invested solely in fully benefit-responsive GICs and SICs and liquid, short-term government securities and money market instruments to value the GICs and SICs at contract value rather than fair value. Contract value is the principal balance plus accrued interest. Although accounting guidance requires defined benefit plans invested solely in GICs and SICs to be valued at fair value, the fair value of these contracts is usually equal to their contract value.

Valuation dates. Unless specified by a fund’s written plan, there is no requirement that admissions and withdrawals be permitted as frequently as valuation dates. Section 9.18(b)(1)(iv), however, requires a CIF plan to establish the terms and conditions governing admission and withdrawal. The “Admission and Withdrawal of Accounts” section below discusses the factors the OCC has considered when authorizing CIF plans that restrict admissions and withdrawals.

IL 716 cites Statement of Position 94-4 (SOP 94-4), “Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined-Contribution Plans,” issued by the American Institute of Certified Public Accountants (September 23, 1994), as a basis for the OCC’s interpretation.

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