Authority Of Savings Bank Employees Benefit Association ("SBEBA") Relative To Formation Of Or Investment In Subsidiaries - Q2 1999By the Division of Banks
At issue is whether Savings Bank Employees Benefit Association ("SBEBA"), a special purpose entity established by Mass. Gen. Laws chapter 168, sections 42-44, can lawfully incorporate and own a for-profit subsidiary, Northeast Retirement Services, Inc. ("NRS"), a business corporation formed under Mass. Gen. Laws chapter 156B, and operate it as a wholly-owned subsidiary. SBEBA was created in 1987 as a tax-exempt association for the purpose of promoting the general welfare through the provision of retirement benefits and plans to employees of savings banks and other eligible participating organizations. NRS presently provides retirement plan administration and services for defined benefit plans, defined contribution plans and non-qualified plans.
It is the Division's position that absent an express statutory provision, SBEBA, as a special purpose entity established under the state's banking laws, lacks the authority to form or invest in a wholly-owned subsidiary corporation. In addition, SBEBA's enabling statute and bylaws do not provide authority for it to invest in a corporate operating subsidiary that engages in activities SBEBA itself would not be able to engage in directly. SBEBA is one of nine public or special purpose non-bank entities created by Massachusetts law that are subject to varying degrees of supervision by the Division. It has been the Division's longstanding position that the acts creating these entities are ordinarily narrowly construed. The Division has consistently stated that express legislative authorization is generally required to expand an entity's purpose or its range of permissible powers or activities even where there are compelling strategic, business, and public policy reasons justifying the change. The investment provisions of said sections 42 and 43 and section 3.1 of SBEBA's bylaws are primarily directed at the investment of retirement plan funds administered by SBEBA. Both the statute and bylaws indicate that SBEBA's investment authority is limited to passive investments that are directly related to the investment of retirement plan funds. To infer an authority to make controlling stock investments without limitation in any corporation, including a wholly-owned subsidiary, is an overly expansive interpretation. The Division also has considered whether an investment in a wholly-owned subsidiary would be authorized under the general powers provision of said section 42 clause (f). This provision states that SBEBA may "do such other acts that may be necessary to carry out the powers conferred upon it by law and its bylaws;" (emphasis supplied). The Division places significant weight on the statute's use of the word "necessary." This provision is not a grant of broad incidental powers. The test is whether the underlying purpose of SBEBA's statute would fail or be frustrated but for the exercise of a particular power or activity. The Division does not believe that the investment in a wholly-owned corporate operating subsidiary such as NRS simply because it may be beneficial or advantageous meets this test. Moreover, the fact that NRS engages in activities that SBEBA itself would not be able to engage in directly only underscores that this type of controlling investment is not "necessary" to carry out SBEBA's statutory mission and purpose.