Advisory Opinion

December 7, 2005

Andree M. St. Martin
Stephen M. Saxon
Groom Law Group, Chartered
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-5893


Dear Ms. St. Martin and Mr. Saxon:

This is in response to your request on behalf of the Hartford Life Insurance Company (Hartford) for an advisory opinion under the Employee Retirement Income Security Act of 1974, as amended (ERISA). Specifically, you seek guidance regarding the definition of a “separate account” contained in section 3(17) of ERISA.

You represent that Hartford, a Connecticut corporation, is a stock life insurance company engaged in the business of offering life insurance policies and annuities to individuals, corporations, groups and employee benefit plans in all states of the United States as well as the District of Columbia. Hartford is ultimately controlled by The Hartford Financial Services Group, Inc., one of the largest financial services providers in the United States.

You represent that Hartford maintains a pooled separate account funded through life insurance policies (Policy). The form of the Policy has been submitted to and approved by the applicable state insurance department. Policyholders include ERISA-covered plans as well as plans and other entities not covered by ERISA.

The separate account is divided into divisions (Divisions), each of which has a different investment objective or style. You represent that Hartford is the legal owner of all separate account assets and that at the Hartford’s custodian the assets allocated to each Division are titled separately and that Hartford’s title reflects the specific Division to which the assets have been allocated. You represent that the use of multiple Divisions within a separate account as opposed to multiple separate accounts, each having a single investment pool, reduces the insurer’s costs of administering the accounts thereby permitting it to offer to the Investor a more cost competitive product.

Each policyholder (Investor) directs the investment of its premiums in one or more of the Divisions. You represent that, once a Division is selected, the Investor's interest in the Division and return on investment is determined under the Policy's provisions. You represent that the Policy describes the allocation of premiums, expenses and income and the calculation of the investment return of each Division. The Divisions are described as "portfolios" within a single separate account. You represent that the income, gains and losses of each Division are calculated exactly as they would be if the Division were established as an individual "separate account."

You represent that the Policy provides for the calculation of investment value (Investment Value) by Division. You represent that Investment Value is calculated for the separate account as a whole, but this amount is simply the sum of the Investment Values of the Divisions, and is used to reflect the Investor’s entire interest in the Policy. The Investment Value of each Division is based upon the earnings and expenses attributable to the assets allocated to that Division alone. Specifically, you represent that a Division's Investment Value is the sum of (i) the Investment Value for the preceding valuation period, (ii) the Investment Value for the preceding valuation period multiplied by the net rate of return for the current valuation period, (iii) any experience credits or premium payments allocated to the Division during the current valuation period, less the sum of (A) loan debits or credits or withdrawals, and (B) administrative and insurance charges.(1)  You represent that the mechanical application of these Policy rules results in the allocation to each Division of the gains and losses attributable to the assets invested in that Division (and not to the assets (or liabilities) of any other Division or to Hartford's general account). You represent that these rules are reiterated by Hartford in the Private Placement Memorandum issued for the Policy.

You have asked for an advisory opinion as to whether each Division, as described above, qualifies as a distinct “separate account” within the meaning of ERISA section 3(17).

The plan assets regulation at 29 CFR § 2510.3-101 defines when a plan’s investment in another entity causes that entity’s underlying assets to be “plan assets.” The plan assets regulation imposes a “look-through” rule based on the premise that, with certain exceptions, when a plan indirectly retains investment management services by investing in a pooled investment vehicle, the assets of the vehicle should be viewed as plan assets and managed according to the fiduciary responsibility provisions of ERISA. In situations outside the scope of the plan assets regulation and the Department’s “participant contribution” regulations at 29 CFR § 2510.3-102, the assets of an employee benefit plan generally are to be identified on the basis of ordinary notions of property rights. See, e.g., Advisory Opinion No. 99-08A (May 20, 1999).

The plan assets regulation provides at 29 CFR § 2510.3-101(a)(2) that, in the case of a plan’s investment in an equity interest of an entity, the plan’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless equity participation in the entity by benefit plan investors is not “significant,” the entity is an operating company, or the equity interest held by the plan is a publicly-offered security or a security issued by an investment company registered under the Investment Company Act of 1940.

The plan assets regulation provides at 29 CFR § 2510.3-101(h)(1)(iii) that, notwithstanding any other provision in the regulation, if a plan acquires or holds an interest in a separate account of an insurance company, other than a separate account that is maintained solely in connection with fixed contractual obligations of the insurance company under which the amounts payable, or credited, to the plan (including an annuitant) are not affected in any manner by the investment performance of the separate account, the plan’s assets include the investment in the separate account and each of the underlying assets of the separate account, unless the separate account is registered as an investment company under the Investment Company Act of 1940. Under this regulation, once a plan acquires or holds an interest in a pooled separate account, all of the assets of the separate account become plan assets. 29 CFR § 2510.3-101(h)(1)(iii).

Section 3(17) of ERISA defines the term “separate account” as an account established or maintained by an insurance company under which income, gains and losses, whether or not realized, from assets allocated to such account, are, in accordance with the applicable contract, credited to or charged against such account without regard to other income, gains or losses of the insurance company.

You represent that, according to the Policy, the income, gains and losses attributable to the assets of each Division, whether or not realized, are credited to or charged against the assets invested in that Division and not to the assets of any other Division or to the insurer’s general account and without regard to other income, gains or losses of other Divisions or the insurer’s general account. Further, you represent that each Division has a different investment objective or style. Based on the foregoing, it is the Department’s view that each Division of the pooled separate account, would itself be a “separate account” within the meaning of section 3(17) of ERISA. Each Division would likewise be considered a distinct separate account under the plan asset regulation. 29 CFR § 2510.3-101.

This letter constitutes an advisory opinion under ERISA Procedure 76-1. Accordingly, it is subject to the provisions of that procedure, including section 10 thereof relating to the effect of advisory opinions.


Louis J. Campagna
Chief, Division of Fiduciary Interpretations
Office of Regulations and Interpretations


  1. A Division’s experience factor for a valuation period is the ratio of the Division’s net assets at the end of the valuation period (before recognizing transfers in or out) over the Division’s net assets at the end of the preceding valuation period, less the mortality, expense and risk charges, and taxes for the current valuation period. A Division’s net rate of return is the experience factor minus 1.