HB-5833, As Passed Senate, December 8, 2004
SENATE 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 subsidiary,
8 or trust company, or savings bank that is authorized to act in a
9 fiduciary capacity in
this state. or a
10 (ii) A wholly owned subsidiary of an entity described in
11 subparagraph (i) that is authorized to act in a fiduciary
12 capacity in this state.
13 (iii) An entity authorized to act in a fiduciary capacity in
14 any other state that is a member of an affiliated group within
15 the meaning of section
1504 of the internal revenue code which
16 of 1986 that includes any
of the above and which is authorized
17 to act in a fiduciary
capacity in any other state any
of the
18 entities described in subparagraph (i) or (ii).
19 (b)
"Fiduciary" means a financial institution or person
20 acting in the capacity
of executor, administrator, administrator
21 with the will annexed,
administrator de bonis non guardian,
22 testamentary trustee,
trustee appointed by any court, and trustee
23 under a written
agreement, declaration, or instrument of trust,
24 either solely or
together with others.
25 (c) "Common
trust fund" means a fund maintained by a
26 financial institution,
exclusively for the collective investment
27 and reinvestment of
money contributed to the fund by the
1 financial institution
in its capacity as a fiduciary or
2 cofiduciary and
established, maintained, and administered
3 pursuant to the
requirements of this act. For the purposes of
4 this act, 2 or more
financial institutions shall be treated as 1
5 financial institution
with respect to a fund of which any 1 of
6 the financial
institutions is trustee or 2 or more of the
7 institutions are
co-trustees.
8 (e) "Fund" means a common trust fund or a collective
9 investment fund.
10 (f) "Plan" means the written plan for a fund described in
11 section 4.
12 Sec. 2. Establishment
of common trust funds.
13 Any A financial institution may establish,
maintain, and
14 administer 1 or more common
trust funds. for the purpose of
15 furnishing investments
to itself as a fiduciary or cofiduciary.
16 Sec. 3. Investment
in common trust funds.
17 Any A financial institution in its capacity as a
fiduciary
18 or cofiduciary ,
whether such fiduciary capacity arose before or
19 is created after this
act takes effect, may invest funds which
20 that it lawfully holds
for investment in such that capacity in
21 interests or participations in 1 or more common trust funds, if
22 such the investment is not prohibited by the
instrument,
23 judgment, decree, or order creating the fiduciary relationship
24 , and if, in the case of cofiduciaries, the
financial
25 institution procures
the consent of its cofiduciary or
26 cofiduciaries to such
investment a financial institution
in its
27 capacity as a cofiduciary, the financial institution complies
1 with any consent requirements imposed by the estates and
2 protected individuals code, 1998 PA 386, MCL 700.1101 to
3 700.8102. A financial institution may invest assets of
4 retirement, pension, profit sharing, stock bonus, or other
5 employee benefit trusts exempt from federal income tax that the
6 financial institution holds in any capacity, including agent, in
7 a collective investment fund.
8 Sec. 4. (1) Provisions
of common trust funds and the
9 effect thereof. Each
common trust fund shall be established and
10 maintained A financial institution shall establish and
maintain
11 a fund in accordance with
a written plan (referred to herein as
12 the plan) approved by resolution of the board of directors of
13 the financial institution
and approved in writing by competent
14 legal counsel. The
plan shall provide that the common trust fund
15 shall be administered
in conformity with the rules and
16 regulations,
prevailing from time to time, of the commissioner of
17 the banking department
of this state, and shall contain full and
18 detailed provisions,
not inconsistent with the provisions of such
19 rules and regulations
and the provisions of this act, as to the
20 manner in which the
common trust fund is to be operated, the
21 investment powers with
respect to the common trust fund, the
22 allocation and
apportionment of income, profits and losses, the
23 terms and conditions
governing the admission or withdrawal of
24 investments or
participations in the common trust fund, the
25 auditing and
settlement of accounts of the financial institution
26 with respect to the
common trust fund, the basis and method of
27 valuing assets in the
common trust fund, the basis upon which the
1 common trust fund may
be terminated, and such other matters as
2 may be necessary to
define clearly the rights of participants in
3 the common trust
fund. A copy of the plan shall be available at
4 the principal office
of the financial institution for inspection
5 during all regular
business hours to any person having an
6 interest in a
participation in the common trust fund. The plan
7 may or may not provide
for the amortization of premiums upon
8 bonds or other
obligations, the disposition of discounts and
9 profits and the
allocation of the same to principal or income
10 accounts or the
apportionment of the same between principal and
11 income accounts, the
establishment and maintenance of a reserve
12 out of current
interest from mortgage investments against which
13 realized losses on
mortgages may be charged, and other like
14 matters. The
provisions of the plan shall control all
15 participations therein
and the rights and benefits of all persons
16 interested in such
participations as beneficiaries or otherwise.
17 or by a committee authorized by the board. The plan shall
18 contain full and detailed provisions as to the manner in which
19 the financial institution will operate the fund, including, but
20 not limited to, provisions relating to all of the following:
21 (a) The investment powers and policies with respect to the
22 fund.
23 (b) The allocation of income, profits, and losses.
24 (c) The fees and expenses that the financial institution will
25 charge to the fund and to participating accounts.
26 (d) The terms and conditions governing the admission and
27 withdrawal of participating accounts.
1 (e) Audits of participating accounts.
2 (f) The basis and method of valuing assets in the fund.
3 (g) The expected frequency of income distribution from the
4 fund to participating accounts.
5 (h) The minimum frequency of valuation of fund assets.
6 (i) The period of time following a valuation date in which a
7 valuation of fund assets must be made.
8 (j) The bases upon which the financial institution may
9 terminate the funds.
10 (k) Any other matters necessary to define clearly the rights
11 of participating accounts.
12 (2) A financial institution shall make a copy of a written
13 plan described in subsection (1) available at its principal
14 office for inspection during all regular business hours and shall
15 provide a copy of the plan to any person who requests it.
16 Sec. 4a. (1) At least once during each 12-month period, a
17 financial institution administering a fund shall arrange for an
18 audit of the fund by auditors responsible only to the board of
19 directors of the financial institution.
20 (2) At least once during each 12-month period, a financial
21 institution administering a fund shall prepare a financial report
22 of the fund based on the audit required in subsection (1). The
23 report shall disclose the fund's fees and expenses, a list of
24 investments in the fund, the cost and current market value of
25 each investment, and a statement covering the period after the
26 previous report that shows all of the following, organized by
27 type of investment:
1 (a) A summary of purchases, including costs.
2 (b) A summary of sales, including profit or loss and any
3 other investment changes.
4 (c) Income to and disbursements from the fund.
5 (d) A description of any investments in default.
6 (3) A financial institution shall not publish in the report
7 described in subsection (2) any predictions or representations as
8 to future performance. In addition, with respect to common trust
9 funds, a financial institution shall not publish the performance
10 of individual funds other than those administered by the
11 financial institution or its affiliates.
12 (4) A financial institution administering a fund shall
13 provide a copy of the report described in subsection (2), or
14 provide notice that a copy of the report is available upon
15 request without charge, to each person who ordinarily would
16 receive a regular periodic accounting with respect to each
17 participating account. The financial institution may provide a
18 copy of the report to prospective customers and may provide a
19 copy of the report upon request to any person for a reasonable
20 charge.
21 (5) A financial institution shall not advertise or publicize
22 any common trust fund except in connection with the advertisement
23 of the general fiduciary services of the financial institution.
24 Sec. 5. Investments
of common trust funds.
25 The funds and
assets of a common trust fund may be invested
26 and reinvested in any
1 or more of such investments or items in
27 which a person acting
in a trust or fiduciary capacity, and who
1 is not limited or
restricted by investment specifications or
2 limitations, may
invest trust funds under the laws of this
3 state. A financial institution may invest and reinvest
the
4 assets of a fund in accordance with the plan for that fund.
5 Sec. 5a. (1) A financial institution administering a fund
6 shall not have an interest in that fund other than in its
7 fiduciary capacity. If, because of a creditor relationship or
8 otherwise, a financial institution acquires an interest in a
9 participating account, the financial institution shall withdraw
10 the participating account from the fund on the next withdrawal
11 date. However, a financial institution may invest assets that it
12 holds as fiduciary for its own employees in a fund.
13 (2) A financial institution administering a common trust fund
14 or a collective investment fund shall not make any loan secured
15 by a participant's interest in the fund. An unsecured advance to
16 a fiduciary account participating in the fund until the time of
17 the next valuation date does not constitute the acquisition of an
18 interest in a participating account by the financial
19 institution.
20 (3) A financial institution administering a fund may purchase
21 for its own account any defaulted investment held by the fund
22 rather than segregating the investment as provided in section 8,
23 if, in the judgment of the financial institution, the cost of
24 segregating the investment is excessive in light of the market
25 value of the investment. If a financial institution elects to
26 purchase a defaulted investment, it shall purchase it for its
27 market value or the sum of cost and accrued unpaid interest on
1 the defaulted investment, whichever is greater.
2 Sec. 6. Participations
in common trust funds. The
3 financial institution
shall designate clearly upon its records
4 the names of the
fiduciary accounts on behalf of which the
5 financial institution,
as fiduciary or cofiduciary, owns a
6 participation in the
common trust fund, and the extent of the
7 interest of such
fiduciary accounts therein.
8 A
certificate of participation may be issued for each
9 investment or
participation in a common trust fund. Such
10 certificate shall
state on its face that it is issued without
11 guarantee by the
issuing financial institution of the payment of
12 either principal or
interest, that it will be paid only when
13 funds become available
out of the assets comprising the common
14 trust fund. No such
certificate shall be issued in any form
15 which purports to be
negotiable or assignable.
16 (1) A financial institution administering a fund shall not
17 issue a certificate or other document representing a direct or
18 indirect interest in the fund, except to provide a withdrawing
19 account with a record of an interest in a segregated investment.
20 (2) No fiduciary An
account owning or holding an investment
21 or participation in a common
trust fund, or any certificate of
22 participation therein,
shall be deemed to fund has a
23 proportionate undivided interest in the fund's assets. The
24 account does not have
individual ownership of any asset in such
25 common trust the fund. , but should be deemed to
have only a
26 proportionate
undivided interest in the common trust fund.
27 Sec. 7. Management
of common trust funds.
1 The A financial institution shall have the has
exclusive
2 management and control of
each common trust a fund administered
3 by it , and the
sole right at any time to sell, convert,
4 exchange, transfer, or otherwise change or dispose of the assets
5 comprising the same fund.
Exclusive management and control
6 include, but are not limited to, the right to delegate
7 responsibilities to others to the extent a fiduciary may delegate
8 responsibilities under the laws of this state. The ownership of
9 such assets shall be solely in the in a fund
by a financial
10 institution as
fiduciary, and shall be considered as assets held
11 by it as is solely as a fiduciary.
12 Sec. 8. Valuation
of assets of, and admissions to and
13 withdrawals from,
common trust funds.
14 Not less
frequently than once during each period of 3 months,
15 the financial
institution administering a common trust fund shall
16 determine the value of
the assets in the common trust fund. No
17 participation shall be
admitted to or withdrawn from the common
18 trust fund except on
the basis of such valuation and on the date
19 of the determination
of such valuation or, if permitted by the
20 plan, within 2
business days subsequent to the date of such
21 determination.
22 When
participations are withdrawn from a common trust fund,
23 distributions may be
in cash or ratably in kind, or partly in
24 cash and partly
ratably in kind, provided that all such
25 distributions as of
any 1 valuation date shall be made on the
26 same basis.
27 (1) A financial institution administering a fund that is not
1 invested primarily in real estate or other assets that are not
2 readily marketable shall determine the value of the fund's assets
3 at least every 3 months. A financial institution administering a
4 fund that is invested primarily in real estate or other assets
5 that are not readily marketable shall determine the value of the
6 fund's assets at least once a year. A financial institution
7 administering a fund shall admit an account to or withdraw an
8 account from the fund only on the basis of a valuation described
9 in this section.
10 (2) A financial institution administering a fund may admit an
11 account to or withdraw an account from the fund only if the
12 financial institution has approved a notice for or a notice of
13 intention of taking that action on or before the valuation date
14 on which the admission or withdrawal is based. A request or
15 notice shall not be canceled or countermanded after the valuation
16 date.
17 (3) A financial institution administering a fund shall make
18 distributions to accounts withdrawing from the fund in cash,
19 ratably in kind, in a combination of cash and ratably in kind, or
20 in any other manner consistent with applicable law in the state
21 in which the financial institution maintains the fund. If an
22 investment is withdrawn in kind from a fund for the benefit of
23 all participants in the fund at the time of the withdrawal but
24 the investment is not distributed ratably in kind, the financial
25 institution shall segregate and administer the investment for the
26 benefit ratably of all participants in the fund at the time of
27 withdrawal.
1 Sec. 9. (1) A
financial institution shall not invest any
2 of its own funds in a
common trust fund administered by it. If
3 the financial
institution, because of a creditor relationship or
4 any other reason,
acquires any interest in a participation in
5 such common trust
fund, the participation shall be withdrawn on
6 the first date on
which such withdrawal can be effected.
7 (1) (2) A
financial institution administering a fund may
8 charge a reasonable fee
and recover its reasonable expenses for
9 administering of a
common trust fund, but the fractional part of
10 such fee and expenses
proportionate to the interest of each
11 participant, when
added to any other compensations charged by a
12 financial institution
to a participant, shall not exceed the
13 total amount of
compensations which would have been charged to
14 that participant if no
assets of that participant had been
15 invested in
participations in the fund management
fee that does
16 not exceed an amount equal to the value of legitimate services of
17 tangible benefit to the participating accounts that would not
18 have been provided to the accounts were they not invested in the
19 fund.
20 (2) A financial institution administering a fund may charge
21 reasonable expenses incurred in operating the fund.
22 (3) The A
financial institution shall absorb pay the cost
23 of establishing or
reorganizing a common trust fund.
24 (4) (3) A
financial institution may deduct the fee and
25 expenses allowable allowed
under subsection subsections (1)
26 and (2) from the common
trust fund or from the participating
27 accounts in proportion to
their interests in the common trust
1 fund.
2 Sec. 10. Effect
of mistakes.
3 No
A mistake made in good faith
and in the exercise of due
4 care in the connection
with the administration of a common
5 trust fund shall be deemed to be is not a
violation of this
6 act or of any
rules or regulations issued pursuant thereto
7 under this act, if promptly after discovery of the mistake the
8 financial institution
takes whatever action may be practical in
9 is reasonable under the circumstances to remedy the mistake.
10 Sec. 11. Rules
and regulations.
11 The administration
of each common trust fund shall be subject
12 to such rules and
regulations as may from time to time be
13 promulgated by the
commissioner of the banking department of this
14 state, to the extent
that such rules and regulations are not
15 inconsistent with the
provisions of this act. The
commissioner
16 of the office of financial and insurance services may promulgate
17 and enforce rules regulating the administration of funds under
18 this act pursuant to the administrative procedures act of 1969,
19 1969 PA 306, MCL 24.201 to 24.328.
20 Sec. 12. Other
common trust funds.
21 Nothing herein
contained shall prohibit a financial
22 institution from
establishing, maintaining, and administering 1
23 or more common trust
funds differing from the requirements of
24 this act, in which
only investments or participations are made by
25 such financial
institution, in accordance with specific contract
26 authority.
27 (1) In addition to investing assets in a fund, a financial
1 institution may invest assets that it holds as fiduciary in any
2 of the following, to the extent not prohibited by applicable
3 law:
4 (a) In any of the following loans or obligations, if the
5 financial institution's only interest in the loans or obligations
6 is its capacity as fiduciary:
7 (i) A single real estate loan, a direct obligation of the
8 United States, or an obligation fully guaranteed by the United
9 States or a single fixed amount security, obligation, or other
10 property, either real, personal, or mixed, of a single issuer.
11 (ii) A variable amount note of a borrower of prime credit, if
12 the financial institution uses the note solely for investment of
13 funds held in its fiduciary accounts.
14 (b) In a fund maintained by the financial institution for the
15 collective investment of cash balances received or held by a
16 financial institution in its capacity as trustee, personal
17 representative, executor, administrator, guardian, or custodian
18 under a uniform gifts or transfers to minors act of any state
19 that the financial institution considers too small to be invested
20 separately to advantage. The total assets in a fund described in
21 this subdivision shall not exceed $1,000,000.00 and the number of
22 participating accounts shall not exceed 100.
23 (c) In any investment specifically authorized by the
24 instrument creating the fiduciary account or in a court order, in
25 the case of trusts created by a corporation, including its
26 affiliates and subsidiaries, or by several individual settlors
27 who are closely related.
1 (d) In any collective investment authorized by applicable
2 law, including, but not limited to, an investment under a preneed
3 funeral statute of any state.
4 (e) In any other manner described by the financial
5 institution in a written plan approved by the financial
6 institution's state or federal regulator. In order to obtain a
7 special exemption, a financial institution shall submit to its
8 regulator a written plan that sets forth all of the following:
9 (i) The reason that the proposed fund requires a special
10 exemption.
11 (ii) The provisions of the proposed fund that are
12 inconsistent with this act.
13 (iii) The provisions of this act for which the financial
14 institution seeks an exemption.
15 (iv) The manner in which the proposed fund addresses the
16 rights and interests of the participating accounts.
17 (2) For purposes of this section, a financial institution
18 acts as a fiduciary if the financial institution acts as any of
19 the following:
20 (a) A trustee, personal representative, executor,
21 administrator, registrar of stocks and bonds, transfer agent,
22 guardian, assignee, receiver, or custodian under a uniform gifts
23 or transfers to minors act of any state.
24 (b) An investment adviser, if the financial institution
25 receives a fee for its investment advice.
26 (c) In any capacity in which the financial institution
27 possesses investment discretion on behalf of another.
1 (d) In any similar capacity that a federal banking agency
2 having authority over the financial institution may authorize
3 from time to time.
4 Sec. 13. Court
accountings.
5 Unless ordered by a court of competent jurisdiction, a
6 financial institution
administering a common trust fund shall
7 not be is not required to render provide
an accounting to a
8 court accounting with
regard to such the fund. ; but it may,
9 by By application to the circuit court, in
chancery, of the
10 state probate court with jurisdiction for a county in which it
11 this state where the financial institution has its principal
12 office, a financial
institution may secure approval of such an
13 accounting on such under
the conditions as established by the
14 court. may
establish.