What's Old is New Again: 'Harris Trust' Makes a Comeback 

Written by Bob Toth 

Yes, Virginia, there is a Harris Trust (with apologies to Francis Church).

No, my friends, Harris Trust has never really gone away. But it has been so long ago now since we have had to really deal with this matter, it fades from memory. The "new guys" look at us with quizzical looks (or maybe blank stares) when we even mention the words "Harris Trust."  They ask us to “explain it again,” almost as if saying “that can’t be true.”

For the uninitiated, "Harris Trust" is a reference to string of litigation and appeals which ended up with SCOTUS  deciding (not quite) on the matter of Harris Trust v. John Hancock. (Opinion and recording of oral arguments available here).  In it, the Supreme Court further confused an issue the DOL has always been reluctant to address (and do you blame them?) of when an insurance policy is considered a "guaranteed benefit policy" under ERISA. It is this case which led to the issuance of a prohibited transaction exemption 95-60 and the eventual passage of ERISA § 401(c). This was an important issue to the insurance and investment industries, because pension contracts which failed to be recognized as guaranteed benefit policies could have subjected billions and billions of dollars held in general accounts to ERISA's prohibited transaction rules. It really threw the investment folks into a tizzy for a while, as they now had to figure out how to design their exotic transactions around ERISA's PT rules. And worse than that, they had to talk to ERISA lawyers! Ahhh, the good ol' days.

So why does this matter to anyone today? Well, the industry got its affairs in order following Harris Trust. In response to the Court's decision, the issuance of 95-60, the passage of 401(c) and the DOL's promulgating the regs attempting to define an arcane creature called "transition policies," much of the insurance industry amended its group annuity contracts to qualify as guaranteed benefits policies. But that was years ago. And with the designs of a whole new generation of pension-related annuity products now underway, the current designers may not fully appreciate the Harris Trust solutions which we so carefully crafted.

So a few words to the wise (or at least to the young). Harris Trust lives. You just may not know it.