UNITED STATES SUPREME COURT DECISIONS ON-LINE

A pension plan entered into under a collective bargaining agreement between petitioner local labor union and employer trucking firms required all employees to participate in the plan, but not to pay anything into it. All contributions to the plan were to be made by the employers at a specified amount per week for each man-week of covered employment. To be eligible for a pension, an employee was required to have 20 years of continuous service. Respondent employee, who had over 20 years' service, was denied a pension upon retirement because of a break in service. He then brought suit in Federal District Court, alleging, inter alia, that the union and petitioner trustee of the pension fund had misrepresented and omitted to state material facts with respect to the value of a covered employee's interest in the pension plan, and that such misstatements and omissions constituted a fraud in connection with the sale of a security in violation of § 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission's Rule 10b-5, and also violated § 17(a) of the Securities Act of 1933. Denying petitioners' motion to dismiss, the District Court held that respondent's interest in the pension fund constituted a "security" within the meaning of § 2(1) of the Securities Act and § 3(a)(10) of the Securities Exchange Act because the plan created an "investment contract," and also that there had been a "sale" of this interest to respondent within the meaning of § 2(3) of the Securities Act and § 3(a)(14) of the Securities Exchange Act. The Court of Appeals affirmed.

Held: The Securities Act and the Securities Exchange Act do not apply to a noncontributory, compulsory pension plan. Pp. 439 U. S. 558-570.

(a) To determine whether a particular financial relationship constitutes an investment contract, "[t]he test is whether the scheme involves clubjuris

Page 439 U. S. 552

an investment of money in a common enterprise with profits to come solely from the efforts of others." SEC v. W. J. Howey Co., 328 U. S. 293, 328 U. S. 301. Looking separately at each element of this test, it is apparent that an employee's participation in a noncontributory, compulsory pension plan such as the one in question here does not comport with the commonly held understanding of an investment contract. With respect to the "investment of money" element, in such a pension plan, the purported investment is a relatively insignificant part of the total and indivisible compensation package of an employee, who, from the standpoint of the economic realities, is selling his labor to obtain a livelihood, not making an investment for the future. And with respect to the "expectation of profits" element, while the pension fund depends to some extent on earnings from its assets, the possibility of participating in asset earnings is too insubstantial to bring the entire transaction within the Securities Acts. Pp. 439 U. S. 558-562.

(b) There is no evidence that Congress at any time thought noncontributory plans were subject to federal regulation as securities. Nor until the instant litigation arose is there any evidence that the SEC had ever considered the Securities Act and Securities Exchange Act to be applicable to such plans. Accordingly, there is no justification for deference to the SEC's present interpretation. Pp. 439 U. S. 563-569.

(c) The Employee Retirement Income Security Act of 1974, which comprehensively governs the use and terms of employee pension plans, severely undercuts all argument for extending the Securities Act and Securities Exchange Act to noncontributory, compulsory pension plans, and whatever benefits employees might derive from the effect of these latter Acts are now provided in more definite form through ERISA. Pp. 439 U. S. 569-570.

561 F.2d 1223, reversed.

POWELL, J., delivered the opinion of the Court, in which BRENNAN, STEWART, WHITE, MARSHALL, BLACKMUN, and REHNQUIST, JJ., joined, and in all but the last paragraph of Part III-A of which, BURGER, C.J.,joined. BURGER, C.J.,filed a concurring opinion, post, p. 439 U. S. 570. STEVENS, J., took no part in the consideration or decision of the cases. clubjuris

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