Additional Insight on Code of Ethics Questions

Q: Does Rule 204A-1 require reporting on company sponsored (or not sponsored, such as for a spouse) 401(k) plans if the asset type needs to be reported?

To answer your question, first we will step back to the requirements.

Rule 204A-1 requires Access Persons to report all “reportable securities” for which they have direct or indirect beneficial ownership. There are five exceptions to “reportable securities”:

  1. Transactions and holdings in direct obligations of the Government of the United States.
  2. Money market instruments — bankers’ acceptances, bank certificates of deposit, commercial paper, repurchase agreements and other high quality short-term debt instruments.
  3. Shares of money market funds.
  4. Transactions and holdings in shares of other types of mutual funds, unless the adviser or a control affiliate acts as the investment adviser or principal underwriter for the fund.
  5. Transactions in units of a unit investment trust if the unit investment trust is invested exclusively in unaffiliated mutual funds.

In addition, Rule 204A-1 permits the following exceptions to personal securities reporting:

  1. Any report with respect to securities held in accounts over which the access person had no direct or indirect influence or control.
  2. A transaction report with respect to transactions effected pursuant to an automatic investment plan.1
  3. A transaction report if the report would duplicate information contained in broker trade confirmations or account statements that you hold in your records so long as you receive the confirmations or statements no later than 30 days after the end of the applicable calendar quarter.
  4. In the case of an advisory firm that has only one access person, so long as the firm maintains records of the holdings and transactions that rule 204A-1 would otherwise require be reported.
1 Automatic investment plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan.

We recommend first seeing if the 401K plan in question might meet one of the exemptions noted above.
It is presumed that the Access Person also has beneficial ownership over an account of the spouse2 living in the same household as the Access Person.

If the company is making investment decisions for the company sponsored 401K plan, it could be argued that the Access Person (depending upon their role within that 401K plan) has investment discretion over the account and therefore would most likely need to report on this plan as part of the quarterly transaction reporting and annual holdings report.

If the spouse is part of the company sponsored plan, the same argument could be made as stated above. However, if the spouse is involved in a 401K plan that is not sponsored by the Firm and the spouse or Access Person does not have investment discretion over this 401K plan, then it could probably be exempt from the quarterly transaction reporting. However, it must be included as part of the Access Person’s annual holdings report.

If the Access Person does NOT have investment discretion over the 401K plan in question, then it is not required to be reported on a quarterly basis. However, it must be included within the Access Person’s annual holdings report.

2 For purpose of the question we only reference spouse; however, an Access Person is presumed to have beneficial ownership over any immediate family member living in the same household. The term immediate family shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.


Q: Similarly, does Rule 204A-1 require reporting on 529 plans?

According to the WilmerHale, LLP no-action letter dated July 29, 2010, the SEC would not recommend enforcement action for not reporting 529 Plans as “reportable securities.” Please note, that the facts and circumstances for these plans must apply, that is, the access person has little to no control over the investment decisions of the 529 Plan.



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