HB-5833, As Passed House, September 29, 2004
SUBSTITUTE FOR
HOUSE BILL NO. 5833
A bill to amend 1941 PA 174, entitled
"An act to authorize the establishment and the maintenance of
common trust funds; to authorize investments or participations
therein; to define the requirements and terms thereof and the
conditions and terms governing investments or participations
therein and the admission and withdrawal of such investments or
participations; to prescribe and define the rights, powers and
duties of banks, trust companies, fiduciaries, participants,
beneficiaries and other persons with respect thereto; to provide
for the regulation and supervision thereof; and to repeal acts
and parts of acts inconsistent with the provisions of this act,"
by amending the title and sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10,
11, 12, and 13 (MCL 555.101, 555.102, 555.103, 555.104, 555.105,
555.106, 555.107, 555.108, 555.109, 555.110, 555.111, 555.112,
and 555.113), section 1 as amended by 1984 PA 101 and section 9
as amended by 1986 PA 23, and by adding sections 4a and 5a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
1 TITLE
2 An act to authorize the establishment and the maintenance of
3 common trust funds and collective investment funds; to authorize
1 investments or
participations therein in those funds; to define
2 the requirements and
terms thereof and of those funds, the
3 conditions and terms governing investments or participations
4 therein in those funds, and the admission and
withdrawal of
5 such those investments or participations; to
prescribe and
6 define the rights, powers, and duties of banks, trust companies,
7 fiduciaries, participants, beneficiaries, and other persons with
8 respect thereto to
common trust funds and collective investment
9 funds; and to provide for the regulation and supervision
10 thereof; and to
repeal acts and parts of acts inconsistent with
11 the provisions of this
act of those funds.
12 Sec. 1. (1) This act shall be known and may be cited as the
13 "collective investment funds act".
14 (2) As used in this act:
15 (a) "Collective investment fund" means a fund maintained by a
16 financial institution or by 1 or more affiliated financial
17 institutions that consists solely of assets of retirement,
18 pension, profit sharing, stock bonus, or other trusts that are
19 exempt from federal income tax.
20 (b) "Common trust fund" means a fund maintained by a
21 financial institution or 1 or more affiliated financial
22 institutions exclusively for the collective investment and
23 reinvestment of money contributed to the fund by the financial
24 institution or the affiliated financial institutions in its
25 capacity as a fiduciary or cofiduciary.
26 (c) "Fiduciary" means a financial institution or other person
27 acting in the capacity of guardian, conservator, personal
1 representative, or trustee, either solely or together with
2 others, or custodian under a uniform gift or transfer to minors
3 act of any state.
4 (d) (a) "Financial
institution" means a any of the
5 following:
6 (i) A state bank, national bank, state or federally chartered
7 savings and loan
association, or its wholly-owned wholly owned
8 subsidiary. ,
or
9 (ii) A trust
company , authorized to act in a fiduciary
10 capacity in this state.
or a
11 (iii) A member of an affiliated group within the meaning of
12 section 1504 of the
internal revenue code which of 1986 that
13 includes any of the
above and which an entity described in
14 subparagraph (i) or (ii) that is authorized to act in a fiduciary
15 capacity in any other state.
16 (b)
"Fiduciary" means a financial institution or person
17 acting in the capacity
of executor, administrator, administrator
18 with the will annexed,
administrator de bonis non guardian,
19 testamentary trustee,
trustee appointed by any court, and trustee
20 under a written
agreement, declaration, or instrument of trust,
21 either solely or
together with others.
22 (c) "Common
trust fund" means a fund maintained by a
23 financial institution,
exclusively for the collective investment
24 and reinvestment of
money contributed to the fund by the
25 financial institution
in its capacity as a fiduciary or
26 cofiduciary and
established, maintained, and administered
27 pursuant to the
requirements of this act. For the purposes of
1 this act, 2 or more
financial institutions shall be treated as 1
2 financial institution
with respect to a fund of which any 1 of
3 the financial
institutions is trustee or 2 or more of the
4 institutions are
co-trustees.
5 (e) "Fund" means a common trust fund or a collective
6 investment fund.
7 (f) "Plan" means the written plan for a fund described in
8 section 4.
9 Sec. 2. Establishment
of common trust funds.
10 Any A financial institution may establish,
maintain, and
11 administer 1 or more common
trust funds. for the purpose of
12 furnishing investments
to itself as a fiduciary or cofiduciary.
13 Sec. 3. Investment
in common trust funds.
14 Any A financial institution in its capacity as a
fiduciary
15 or cofiduciary , whether
such fiduciary capacity arose before or
16 is created after this
act takes effect, may invest funds which
17 that it lawfully holds
for investment in such that capacity in
18 interests or participations in 1 or more common trust funds, if
19 such the investment is not prohibited by the
instrument,
20 judgment, decree, or order creating the fiduciary relationship.
21 , and if, in the case
of cofiduciaries, the financial
22 institution procures the
consent of its cofiduciary or
23 cofiduciaries to such
investment. A financial
institution may
24 invest assets of retirement, pension, profit sharing, stock
25 bonus, or other employee benefit trusts exempt from federal
26 income tax that the financial institution holds in any capacity,
27 including agent, in a collective investment fund.
1 Sec. 4. (1) Provisions
of common trust funds and the
2 effect thereof. Each
common trust fund shall be established and
3 maintained A financial institution shall establish and
maintain
4 a fund in accordance with
a written plan (referred to herein as
5 the plan) approved by resolution of the board of directors of
6 the financial institution
and approved in writing by competent
7 legal counsel. The
plan shall provide that the common trust fund
8 shall be administered
in conformity with the rules and
9 regulations,
prevailing from time to time, of the commissioner of
10 the banking department
of this state, and shall contain full and
11 detailed provisions,
not inconsistent with the provisions of such
12 rules and regulations
and the provisions of this act, as to the
13 manner in which the
common trust fund is to be operated, the
14 investment powers with
respect to the common trust fund, the
15 allocation and
apportionment of income, profits and losses, the
16 terms and conditions
governing the admission or withdrawal of
17 investments or
participations in the common trust fund, the
18 auditing and
settlement of accounts of the financial institution
19 with respect to the
common trust fund, the basis and method of
20 valuing assets in the
common trust fund, the basis upon which the
21 common trust fund may
be terminated, and such other matters as
22 may be necessary to
define clearly the rights of participants in
23 the common trust
fund. A copy of the plan shall be available at
24 the principal office
of the financial institution for inspection
25 during all regular
business hours to any person having an
26 interest in a
participation in the common trust fund. The plan
27 may or may not provide
for the amortization of premiums upon
1 bonds or other
obligations, the disposition of discounts and
2 profits and the
allocation of the same to principal or income
3 accounts or the
apportionment of the same between principal and
4 income accounts, the
establishment and maintenance of a reserve
5 out of current
interest from mortgage investments against which
6 realized losses on
mortgages may be charged, and other like
7 matters. The
provisions of the plan shall control all
8 participations therein
and the rights and benefits of all persons
9 interested in such
participations as beneficiaries or otherwise.
10 or by a committee authorized by the board. The plan shall
11 contain full and detailed provisions as to the manner in which
12 the financial institution will operate the fund, including, but
13 not limited to, all of the following provisions:
14 (a) The investment powers and policies with respect to the
15 fund.
16 (b) The allocation of income, profits, and losses.
17 (c) The fees and expenses that the financial institution will
18 charge to the fund and to participating accounts.
19 (d) The terms and conditions governing the admission and
20 withdrawal of participating accounts.
21 (e) How participating accounts will be audited.
22 (f) The basis and method of valuing assets in the fund.
23 (g) The expected frequency of income distribution from the
24 fund to participating accounts.
25 (h) The minimum frequency of valuation of fund assets.
26 (i) The period of time following a valuation date in which a
27 valuation of fund assets must be made.
1 (j) The bases upon which the financial institution may
2 terminate the funds.
3 (k) Any other matters necessary to define clearly the rights
4 of participating accounts.
5 (2) A financial institution shall make a copy of a written
6 plan described in subsection (1) available at its principal
7 office for inspection during all regular business hours and shall
8 provide a copy of the plan to any person who requests it.
9 Sec. 4a. (1) At least once during each 12-month period, a
10 financial institution administering a fund shall arrange for an
11 audit of the fund by auditors responsible only to the board of
12 directors of the financial institution.
13 (2) At least once during each 12-month period, a financial
14 institution administering a fund shall prepare a financial report
15 of the fund based on the audit required in subsection (1). The
16 report shall disclose the fund's fees and expenses, a list of
17 investments in the fund, the cost and current market value of
18 each investment, and a statement covering the period after the
19 previous report that shows all of the following, organized by
20 type of investment:
21 (a) A summary of purchases, including costs.
22 (b) A summary of sales, including profit or loss and any
23 other investment changes.
24 (c) Income to and disbursements from the fund.
25 (d) A description of any investments in default.
26 (3) A financial institution administering a fund shall
27 provide a copy of the report described in section (1), or provide
1 notice that a copy of the report is available upon request
2 without charge, to each person who ordinarily would receive a
3 regular periodic accounting with respect to each participating
4 account. The financial institution may provide a copy of the
5 report to prospective customers and may provide a copy of the
6 report upon request to any person for a reasonable charge.
7 Sec. 5. Investments
of common trust funds.
8 The funds and
assets of a common trust fund may be invested
9 and reinvested in any
1 or more of such investments or items in
10 which a person acting
in a trust or fiduciary capacity, and who
11 is not limited or
restricted by investment specifications or
12 limitations, may
invest trust funds under the laws of this
13 state. A financial institution may invest and reinvest
the
14 assets of a fund in accordance with the plan for that fund.
15 Sec. 5a. (1) A financial institution administering a fund
16 shall not have an interest in that fund other than in its
17 fiduciary capacity. If, because of a creditor relationship or
18 otherwise, a financial institution acquires an interest in a
19 participating account, the financial institution shall withdraw
20 the participating account from the fund on the next withdrawal
21 date. However, a financial institution may invest assets that it
22 holds as fiduciary for its own employees in a fund.
23 (2) A financial institution administering a common trust fund
24 or a collective investment fund shall not make any loan secured
25 by a participant's interest in the fund. An unsecured advance to
26 a fiduciary account participating in the fund until the time of
27 the next valuation date does not constitute the acquisition of an
1 interest in a participating account by the financial
2 institution.
3 (3) A financial institution administering a fund may purchase
4 for its own account any defaulted investment held by the fund
5 rather than segregating the investment as provided in section 8,
6 if, in the judgment of the financial institution, the cost of
7 segregating the investment is excessive in light of the market
8 value of the investment. If a financial institution elects to
9 purchase a defaulted investment, it shall purchase it for its
10 market value or the sum of cost and accrued unpaid interest on
11 the defaulted investment, whichever is greater.
12 Sec. 6. (1) Participations
in common trust funds. The A
13 financial institution
shall clearly designate clearly upon in
14 its records the names
of the fiduciary accounts on behalf of
15 which the financial
institution, as fiduciary or cofiduciary,
16 owns a participation
in the common trust fund, invested
in each
17 fund and the extent of
the interest of such fiduciary accounts
18 therein each account in each fund.
19 A
certificate of participation may be issued for each
20 investment or
participation in a common trust fund. Such
21 certificate shall
state on its face that it is issued without
22 guarantee by the
issuing financial institution of the payment of
23 either principal or
interest, that it will be paid only when
24 funds become available
out of the assets comprising the common
25 trust fund. No such
certificate shall be issued in any form
26 which purports to be
negotiable or assignable.
27 (2) A financial institution administering a fund shall not
1 issue a certificate or other document representing a direct or
2 indirect interest in the fund, except to provide a withdrawing
3 account with a record of an interest in a segregated investment.
4 (3) No A
fiduciary account owning or holding an investment
5 or participation in a common
trust fund, or any certificate of
6 participation therein,
shall be deemed to fund has a
7 proportionate undivided interest in the fund's assets. The
8 fiduciary account does not have individual ownership of any asset
9 in such common trust the
fund. , but should be deemed to have
10 only a proportionate
undivided interest in the common trust
11 fund.
12 Sec. 7. Management
of common trust funds.
13 The A financial institution shall have the has
exclusive
14 management and control of
each common trust a fund administered
15 by it , and the
sole right at any time to sell, convert,
16 exchange, transfer, or otherwise change or dispose of the assets
17 comprising the same fund.
Exclusive management and control
18 include, but are not limited to, the right to delegate
19 responsibilities to others to the extent a fiduciary may delegate
20 responsibilities under the laws of this state. The ownership of
21 such assets shall be solely in the in a fund
by a financial
22 institution as fiduciary,
and shall be considered as assets held
23 by it as is solely as a fiduciary.
24 Sec. 8. Valuation
of assets of, and admissions to and
25 withdrawals from,
common trust funds.
26 Not less
frequently than once during each period of 3 months,
27 the financial
institution administering a common trust fund shall
1 determine the value of
the assets in the common trust fund. No
2 participation shall be
admitted to or withdrawn from the common
3 trust fund except on
the basis of such valuation and on the date
4 of the determination
of such valuation or, if permitted by the
5 plan, within 2
business days subsequent to the date of such
6 determination.
7 When participations
are withdrawn from a common trust fund,
8 distributions may be
in cash or ratably in kind, or partly in
9 cash and partly
ratably in kind, provided that all such
10 distributions as of
any 1 valuation date shall be made on the
11 same basis.
12 (1) A financial institution administering a fund that is not
13 invested primarily in real estate or other assets that are not
14 readily marketable shall determine the value of the fund's assets
15 at least every 3 months. A financial institution administering a
16 fund that is invested primarily in real estate or other assets
17 that are not readily marketable shall determine the value of the
18 fund's assets at least once a year. A financial institution
19 administering a fund shall admit an account to or withdraw an
20 account from the fund only on the basis of a valuation described
21 in this section.
22 (2) A financial institution administering a fund may admit an
23 account to or withdraw an account from the fund only if the
24 financial institution has approved a notice for or a notice of
25 intention of taking that action on or before the valuation date
26 on which the admission or withdrawal is based. A request or
27 notice shall not be canceled or countermanded after the valuation
1 date.
2 (3) A financial institution administering a fund shall make
3 distributions to accounts withdrawing from the fund in cash,
4 ratably in kind, in a combination of cash and ratably in kind, or
5 in any other manner consistent with applicable law in the state
6 in which the financial institution maintains the fund. If an
7 investment is withdrawn in kind from a fund for the benefit of
8 all participants in the fund at the time of the withdrawal but
9 the investment is not distributed ratably in kind, the financial
10 institution shall segregate and administer the investment for the
11 benefit ratably of all participants in the fund at the time of
12 withdrawal.
13 Sec. 9. (1) A
financial institution shall not invest any
14 of its own funds in a
common trust fund administered by it. If
15 the financial
institution, because of a creditor relationship or
16 any other reason,
acquires any interest in a participation in
17 such common trust
fund, the participation shall be withdrawn on
18 the first date on which
such withdrawal can be effected.
19 (1) (2) A
financial institution administering a fund may
20 charge a reasonable fee
and recover its reasonable expenses for
21 administering of a
common trust fund, but the fractional part of
22 such fee and expenses
proportionate to the interest of each
23 participant, when
added to any other compensations charged by a
24 financial institution
to a participant, shall not exceed the
25 total amount of
compensations which would have been charged to
26 that participant if no
assets of that participant had been
27 invested in
participations in the fund management
fee that does
1 not exceed an amount equal to the value of legitimate services of
2 tangible benefit to the participating accounts that would not
3 have been provided to the accounts were they not invested in the
4 fund.
5 (2) A financial institution administering a fund may charge
6 reasonable expenses incurred in operating the fund.
7 (3) The A
financial institution shall absorb pay the cost
8 of establishing or
reorganizing a common trust fund.
9 (4) (3) A
financial institution may deduct the fee and
10 expenses allowable allowed
under subsection subsections (1)
11 and (2) from the common
trust fund or from the participating
12 accounts in proportion to
their interests in the common trust
13 fund.
14 Sec. 10. Effect
of mistakes.
15 No
A mistake made in good faith
and in the exercise of due
16 care in the connection
with the administration of a common
17 trust fund shall be deemed to be is not a
violation of this
18 act or of any
rules or regulations issued pursuant thereto
19 under this act, if promptly after discovery of the mistake the
20 financial institution
takes whatever action may be practical in
21 is reasonable under the circumstances to remedy the mistake.
22 Sec. 11. Rules
and regulations.
23 The administration
of each common trust fund shall be subject
24 to such rules and
regulations as may from time to time be
25 promulgated by the
commissioner of the banking department of this
26 state, to the extent
that such rules and regulations are not
27 inconsistent with the
provisions of this act. The
commissioner
1 of the office of financial and insurance services may promulgate
2 and enforce rules regulating the administration of funds under
3 this act pursuant to the administrative procedures act of 1969,
4 1969 PA 306, MCL 24.201 to 24.328.
5 Sec. 12. Other
common trust funds.
6 Nothing herein
contained shall prohibit a financial
7 institution from
establishing, maintaining, and administering 1
8 or more common trust
funds differing from the requirements of
9 this act, in which
only investments or participations are made by
10 such financial institution,
in accordance with specific contract
11 authority.
12 (1) In addition to investing assets in a fund, a financial
13 institution may invest assets that it holds as fiduciary in any
14 of the following, to the extent not prohibited by applicable
15 law:
16 (a) In any of the following loans or obligations, if the
17 financial institution's only interest in the loans or obligations
18 is its capacity as fiduciary:
19 (i) A single real estate loan, a direct obligation of the
20 United States, or an obligation fully guaranteed by the United
21 States or a single fixed amount security, obligation, or other
22 property, either real, personal, or mixed, of a single issuer.
23 (ii) A variable amount note of a borrower of prime credit, if
24 the financial institution uses the note solely for investment of
25 funds held in its fiduciary accounts.
26 (b) In a fund maintained by the financial institution for the
27 collective investment of cash balances received or held by a
1 financial institution in its capacity as trustee, personal
2 representative, executor, administrator, guardian, or custodian
3 under a uniform gifts or transfers to minors act of any state
4 that the financial institution considers too small to be invested
5 separately to advantage. The total assets in a fund described in
6 this subdivision shall not exceed $1,000,000.00 and the number of
7 participating accounts shall not exceed 100.
8 (c) In any investment specifically authorized by the
9 instrument creating the fiduciary account or in a court order, in
10 the case of trusts created by a corporation, including its
11 affiliates and subsidiaries, or by several individual settlors
12 who are closely related.
13 (d) In any collective investment authorized by applicable
14 law, including, but not limited to, an investment under a preneed
15 funeral statute of any state.
16 (e) In any other manner described by the financial
17 institution in a written plan approved by the financial
18 institution's state or federal regulator. In order to obtain a
19 special exemption, a financial institution shall submit to its
20 regulator a written plan that sets forth all of the following:
21 (i) The reason that the proposed fund requires a special
22 exemption.
23 (ii) The provisions of the proposed fund that are
24 inconsistent with this act.
25 (iii) The provisions of this act for which the financial
26 institution seeks an exemption.
27 (iv) The manner in which the proposed fund addresses the
1 rights and interests of the participating accounts.
2 (2) For purposes of this section, a financial institution
3 acts as a fiduciary if the financial institution acts as any of
4 the following:
5 (a) A trustee, personal representative, executor,
6 administrator, registrar of stocks and bonds, transfer agent,
7 guardian, assignee, receiver, or custodian under a uniform gifts
8 or transfers to minors act of any state.
9 (b) An investment adviser, if the financial institution
10 receives a fee for its investment advice.
11 (c) In any capacity in which the financial institution
12 possesses investment discretion on behalf of another.
13 (d) In any similar capacity that a federal banking agency
14 having authority over the financial institution may authorize
15 from time to time.
16 Sec. 13. Court
accountings.
17 Unless ordered by a court of competent jurisdiction, a
18 financial institution
administering a common trust fund shall
19 not be is not required to render provide
an accounting to a
20 court accounting with
regard to such the fund. ; but it may,
21 by By application to the circuit court, in
chancery, of the
22 state probate court with jurisdiction for a county in which it
23 this state where the financial institution has its principal
24 office, a financial
institution may secure approval of such an
25 accounting on such under
the conditions as established by the
26 court. may
establish.