10 Va. Admin. Code § 5-190-20

Current through Register Vol. 41, No. 6, November 4, 2024

Section 10VAC5-190-20 - Operating rules

Common trust funds shall be administered in accordance with the following regulations:

1. Each common trust fund shall be established and maintained in accordance with a written plan, which shall be approved by a resolution of the bank's board of directors and filed with the Commissioner of Financial Institutions. The plan shall contain appropriate provisions as to the manner in which the fund is to be operated, which provisions shall not be inconsistent with the regulations applicable thereto. The plan shall include provisions relating to: the investment powers of the maintaining bank; a general statement of the investment policy of the bank with respect to the fund; the allocation of income, profits and losses; the terms and conditions governing the admission or withdrawal of participations in the fund; the auditing of accounts of the bank with respect to the fund; the basis and method of valuing assets in the fund, setting forth specific criteria for each type of asset; the minimum frequency for valuation of assets of the fund; the period following each such valuation date during which the valuation may be made (which period in usual circumstances should not exceed 10 business days); the basis upon which the fund may be terminated; and other such matters as may be necessary to define clearly the rights of participants in the fund. Except as otherwise provided in subdivision 15 of this chapter, fund assets shall be valued at market value unless such value is not readily ascertainable, in which case a fair value determined in good faith by the fund trustees may be used. A copy of each such plan shall be available at the principal office of the bank for inspection during all banking hours, and upon request a copy of that plan shall be furnished to any person.

2. Property held by a bank in its capacity as trustee of retirement, pension, profit sharing, stock bonus, or other trusts which are exempt from federal income taxation under any provision of the Internal Revenue Code may be invested in fiduciary funds or employee benefit trusts, subject to the provisions herein contained pertaining to such funds and may qualify for tax exemption pursuant to section 584 of the Internal Revenue Code. Assets of retirement, pension, profit-sharing, stock-bonus, or other trusts which are exempt from federal income taxation by reason of being described in section 401 of the Code may be invested in employee benefit trusts if such trust qualifies for tax exemption under Revenue Ruling 56-267.

3. Participation in a common trust fund shall be on the basis of a proportionate interest in all the assets of the fund. In order to determine whether the investment of funds received or held by a bank as fiduciary in a participation in a common trust fund is proper, a bank may consider the common trust fund as a whole and shall not, for example, be prohibited from making such investment because any particular asset of the fund is not income-producing.

4. Not less frequently than once during each three-month period, a maintaining bank shall determine the value of the assets in a common trust fund as of the date set for the valuation of assets. No participation shall be admitted to or withdrawn from the fund except (i) on the basis of such valuation, and (ii) as of such valuation date. No participation shall be admitted to or withdrawn from the fund unless a written request for such action or a notice of intention to take such action shall have been entered in the fiduciary records of the bank on or before the valuation date and approved in a manner prescribed by the board of directors. No request or notice may be cancelled or countermanded after the valuation date. If an employee benefit trust is to be invested in real estate or in some other asset that is not readily marketable, the bank may require a prior notice period, not to exceed a year, for withdrawals.

5.

a. A bank administering a common trust fund shall at least once during each 12-month period cause an adequate audit to be made of the fund by auditors responsible only to the board of directors of the bank. In the event such audit is performed by independent public accountants, the reasonable expenses of such audit may be charged to the fund.

b. A bank administering a common trust fund shall at least once during each 12-month period prepare a financial report of the fund. This report, based upon the above audit, shall contain:

(i) a list of investments in the fund showing the cost and the current market value of each investment; and

(ii) a statement for the period since the previous report showing: purchases, with cost; sales, with profit or loss; any other investment changes; income and disbursements; and an appropriate notation as to any investment in default.

c. The financial report may include a description of the fund's value on previous dates, as well as its income and disbursements during previous accounting periods. No predictions or representations as to future results may be made. In addition, as to fiduciary funds (as defined herein), neither the report nor any other publication of the bank shall make reference to the performance of funds other than those administered by the bank.

d. A copy of the financial report shall be furnished, or notice shall be given that a copy of such report is available and will be furnished without charge upon request, to each person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account. A copy of such financial report may be furnished to prospective customers. The cost of printing and distribution of these reports shall be borne by the bank. In addition, a copy of the report shall be furnished upon request to any person for a reasonable charge. The fact of the availability of the report on any fiduciary fund may be given publicity solely in connection with the promotion of the fiduciary services of the bank.

e. Except as herein provided, the bank shall not advertise or publicize its fiduciary funds.

6. When participations are withdrawn from a common trust fund, distributions may be made in cash, or ratably in kind, or partly in cash and partly in kind. However, all distributions made as of any one valuation date shall be made on the same basis.

7. If for any reason an investment is withdrawn in kind from a common trust fund for the benefit of all participants in the fund at the time of such withdrawal, and such investment is not distributed ratably in kind, it shall be segregated and administered or realized upon for the benefit ratably of all those who were participants in the fund at the time of withdrawal.

8.

a. No bank shall have any interest in a common trust fund other than in its fiduciary capacity. Except for temporary net cash overdrafts, or as otherwise specifically provided herein, it may not lend money to a fund, sell property to a fund, or purchase property from a fund. No asset of a common trust fund may be invested in any stock or obligation, including any time or savings deposit, of the bank or of any of its affiliates. However, such deposits may be made of funds awaiting investment or distribution.

Subject to all other provisions of this chapter, funds held by a bank as fiduciary for its own employees may be invested in a common trust fund. A bank may not make any loan on the security of a participation in a fund. If, because of a credit relationship or otherwise, the bank acquires an interest in a participation in a fund, the participation shall be withdrawn on the first date when such withdrawal can be effected. However, an unsecured advance to an account holding a participation until the time of the next valuation date shall not be deemed to constitute the acquisition of an interest by the bank.

b. A maintaining bank may purchase for its own account from a common trust fund any defaulted, fixed-income investment held by such fund, if in the judgment of the board of directors the cost of segregation of such investment would be greater than the difference between its market value and its principal amount plus interest and penalty charges due. If the bank elects to make such a purchase of an investment, it must do so at the market value of the investment or at the sum of cost, accrued unpaid interest, and penalty charges - whichever is greater.

9. Except in the case of qualifying employee benefit trusts:

a. No funds or other property shall be invested in a participation in a common trust fund if, as a result of such investment, the participant would have an interest aggregating in excess of 10 % of the market value of the fund at the time the investment is contemplated. In applying this limitation, if two or more accounts are created by the same person or persons and as much as 1/2 the income or principal of each account is payable or applicable to the use of the same person or persons, such accounts shall be considered as one;

b. No investment for a common trust fund shall be made in stocks, bonds, or other obligations of a particular person, firm, or corporation if as a result of such investment the total investment of such fund in the obligations issued or guaranteed by such person, firm, or corporation would exceed 10 % of the then market value of the fund. However, this limitation shall not apply to investments in direct obligations of the United States or in other obligations fully guaranteed by the United States as to principal and interest;

c. A maintaining bank shall keep in cash and readily marketable investments such percentage of the assets of the fund as is necessary to provide adequately for the liquidity needs of the fund and to prevent inequity among participants in the fund.

10. The reasonable expenses incurred in servicing mortgages held by a common trust fund may be charged against the income account of the fund and paid to servicing agents, including the bank maintaining the fund.

11.

a. A bank may (but shall not be required to) transfer up to 5.0 % of the net income derived by a common trust fund from mortgages held by such fund during any regular accounting period to a reserve account, but no such transfer shall be made which would cause the amount in the reserve to exceed 1.0 % of the outstanding principal amount of all mortgages held in the fund. The amount of any such reserve account shall be deducted from the assets of the fund in determining the fair market value of the fund for purposes of admissions and withdrawals.

b. At the end of each accounting period, all interest payments which are due but unpaid with respect to mortgages in the fund shall be charged against such reserve account (to the extent one is available) and credited to income distributed to participants. In the event of subsequent recovery of such interest payments by the fund, the reserve account shall be credited with the amount so recovered.

12. A bank maintaining a common trust fund shall have the exclusive management thereof. A bank may charge a fee for managing such a fund. However, the fractional part of such fee proportionate to the interest of any participant, when added to all other compensation charged by a bank to the participant, shall not exceed the total amount of compensation which would have been charged to said participant if no asset of that participant had been invested in the common trust fund. The bank shall absorb the cost of establishing or reorganizing a common trust fund.

13. A maintaining bank shall not issue any certificate or other document evidencing a direct or indirect interest in a common trust fund.

14. No mistake made in good faith and in the exercise of due care in connection with maintaining a common trust fund shall be deemed to be a violation of this chapter, if, promptly after discovery of the mistake, the bank takes whatever action may be practicable in the circumstances to remedy the mistake.

15. Short-term investment funds that are fiduciary funds may be operated for purposes of admissions and withdrawals on a cost basis, rather than on the basis of market value, if the plan of operation satisfies the following conditions:

a. Investments of such funds must be limited to bonds, notes, or other evidences of indebtedness which are payable on demand (including variable amount notes) or which have a maturity date not exceeding 91 days from the date of purchase. However, 20% of the value of the fund may be invested in longer-term obligations;

b. The difference between the cost and anticipated principal receipt on maturity must be accrued on a straight-line basis;

c. Assets of the fund must be held until maturity under usual circumstances; and

d. After effecting admissions and withdrawals, not less than 20% of the value of the remaining assets of the fund must be composed of cash, demand obligations, and assets that will mature on the fund's next business day.

10 Va. Admin. Code § 5-190-20

Derived from VR225-01-0202, eff. July 20, 1984.

Statutory Authority

§ 6.2-1009 of the Code of Virginia.