MR. JUSTICE POWELL delivered the opinion of the Court.
This case presents the question whether a noncontributory, compulsory pension plan constitutes a "security" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 (Securities Acts).
In 1954 multiemployer collective bargaining between Local 705 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of America and Chicago trucking firms produced a pension plan for employees represented by the Local. The plan was compulsory and noncontributory. Employees had no choice as to participation in the plan, and did not have the option of demanding that the employer's contribution be paid directly to them as a substitute for pension eligibility. The employees paid nothing to the plan themselves.
The meaning of "continuous service" is at the center of this dispute. Respondent began working as a truckdriver in the Chicago area in 1950, and joined Local 705 the following year. When the plan first went into effect, respondent automatically received 5 years' credit toward the 20-year service requirement because of his earlier work experience.
Respondent's complaint alleged that the Teamsters, the Local, and Peick misrepresented and omitted to state material facts with respect to the value of a covered employee's interest in the pension plan. Court I of the complaint charged that these 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, 48 Stat. 891, 15 U. S. C. § 78j (b), and the Securities and Exchange Commission's Rule 10b-5, 17 CFR § 240.10b-5 (1978). Count II charged that the same conduct amounted to a violation of § 17 (a) of the Securities Act of 1933, 48 Stat. 84, as amended, 15 U. S. C. § 77q. Other counts alleged violations of various labor-law and common-law duties.
The petitioners moved to dismiss the first two counts of the complaint on the ground that respondent had no cause of action under the Securities Acts. The District Court denied the motion. 410 F.Supp. 541 (ND Ill. 1976). It held that respondent's interest in the Pension Fund constituted a security within the meaning of § 2 (1) of the Securities Act, 15 U. S. C. § 77b (1), and § 3 (a) (10) of the Securities Exchange Act, 15 U. S. C. § 78c (a) (10),
The order denying the motion to dismiss was certified for appeal pursuant to 28 U. S. C. § 1292 (b), and the Court of Appeals for the Seventh Circuit affirmed. 561 F.2d 1223 (1977). Relying on its perception of the economic realities of pension plans and various actions of Congress and the SEC with respect to such plans, the court ruled that respondent's interest in the Pension Fund was a "security." According to the court, a "sale" took place either when respondent ratified a collective-bargaining agreement embodying the Fund or when he accepted or retained covered employment instead of seeking other work.
"The starting point in every case involving construction of a statute is the language itself." Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 756 (1975) (POWELL, J., concurring); see Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 199, and n. 19 (1976). In spite of the substantial use of employee pension plans at the time they were enacted, neither § 2 (1) of the Securities Act nor § 3 (a) (10) of the Securities Exchange Act, which define the term "security" in considerable detail and with numerous examples, refers to pension plans of any type. Acknowledging this omission in the statutes, respondent contends that an employee's interest in a pension plan is an "investment contract," an instrument which is included in the statutory definitions of a security.
To determine whether a particular financial relationship constitutes an investment contract, "[t]he test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others." Howey, 328 U. S., at 301. This test is to be applied in light of "the substance—the economic realities of the transaction— rather than the names that may have been employed by the parties." United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 851-852 (1975). Accord, Tcherepnin v. Knight, 389 U.S. 332, 336 (1967); Howey, supra, at 298. Cf. SEC v.
A. Investment of Money
An employee who participates in a noncontributory, compulsory pension plan by definition makes no payment into the pension fund. He only accepts employment, one of the conditions of which is eligibility for a possible benefit on retirement. Respondent contends, however, that he has "invested" in the Pension Fund by permitting part of his compensation from his employer to take the form of a deferred pension benefit. By allowing his employer to pay money into the Fund, and by contributing his labor to his employer in return for these payments, respondent asserts he has made the kind of investment which the Securities Acts were intended to regulate.
In order to determine whether respondent invested in the Fund by accepting and remaining in covered employment, it is necessary to look at the entire transaction through which he obtained a chance to receive pension benefits. In every decision of this Court recognizing the presence of a "security" under the Securities Acts, the person found to have been an investor chose to give up a specific consideration in return for a separable financial interest with the characteristics of a security. See Tcherepnin, supra (money paid for bank capital stock); SEC v. United Benefit Life Ins. Co., 387 U.S. 202 (1967) (portion of premium paid for variable component of mixed variable-and fixed-annuity contract); Variable Annuity Life Ins. Co., supra (premium paid for variable-annuity contract); Howey, supra (money paid for purchase, maintenance,
In a pension plan such as this one, by contrast, the purported investment is a relatively insignificant part of an employee's total and indivisible compensation package. No portion of an employee's compensation other than the potential pension benefits has any of the characteristics of a security, yet these noninvestment interests cannot be segregated from the possible pension benefits. Only in the most abstract sense may it be said that an employee "exchanges" some portion of his labor in return for these possible benefits.
Respondent also argues that employer contributions on his behalf constituted his investment into the Fund. But it is inaccurate to describe these payments as having been "on behalf" of any employee. The trust agreement used employee man-weeks as a convenient way to measure an employer's
B. Expectation of Profits From a Common Enterprise
As we observed in Forman, the "touchstone" of the Howey test "is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others." 421 U. S., at 852. The Court of Appeals believed that Daniel's expectation of profit derived from the Fund's successful management and investment of its assets. To the extent pension benefits exceeded employer contributions and depended on earnings from the assets, it was thought they contained a profit element. The Fund's trustees provided the managerial efforts which produced this profit element.
As in other parts of its analysis, the court below found an expectation of profit in the pension plan only by focusing on one of its less important aspects to the exclusion of its more significant elements. It is true that the Fund, like other holders of large assets, depends to some extent on earnings
The importance of asset earnings in relation to the other benefits received from employment is diminished further by the fact that where a plan has substantial preconditions to vesting, the principal barrier to an individual employee's realization of pension benefits is not the financial health of the fund. Rather, it is his own ability to meet the fund's eligibility requirements. Thus, even if it were proper to describe the benefits as a "profit" returned on some hypothetical investment by the employee, this profit would depend primarily on the employee's efforts to meet the vesting requirements, rather than the fund's investment success.
The court below believed that its construction of the term "security" was compelled not only by the perceived resemblance of a pension plan to an investment contract but also by various actions of Congress and the SEC with regard to the Securities Acts. In reaching this conclusion, the court gave great weight to the SEC's explanation of these events, an explanation which for the most part the SEC repeats here. Our own review of the record leads us to believe that this reliance on the SEC's interpretation of these legislative and administrative actions was not justified.
A. Actions of Congress
The SEC in its amicus curiae brief refers to several actions of Congress said to evidence an understanding that pension plans are securities. A close look at each instance, however, reveals only that Congress might have believed certain kinds of pension plans, radically different from the one at issue here, came within the coverage of the Securities Acts. There is no evidence that Congress at any time thought noncontributory plans similar to the one before us were subject to federal regulation as securities.
The first action cited was the rejection by Congress in 1934 of an amendment to the Securities Act that would have exempted employee stock investment and stock option plans from the Act's registration requirements.
The SEC also relies on a 1970 amendment of the Securities Act which extended § 3's exemption from registration to include "any interest or participation in a single or collective trust fund maintained by a bank . . . which interest or participation is issued in connection with . . . a stock bonus, pension, or profit-sharing plan which meets the requirements for qualification under section 401 of title 26, . . ." § 3 (a) (2) of the Securities Act, as amended, 84 Stat. 1434, 1498, 15 U. S. C. § 77c (a) (2). It argues that in creating a registration exemption, the amendment manifested Congress' understanding that the interests covered by the amendment otherwise were subject to the Securities Acts.
B. SEC Interpretation
The court below believed, and it now is argued to us, that almost from its inception the SEC has regarded pension plans as falling within the scope of the Securities Acts. We are asked to defer to what is seen as a longstanding interpretation of these statutes by the agency responsible for their
As we have demonstrated above, the type of pension plan at issue in this case bears no resemblance to the kind of financial interests the Securities Acts were designed to regulate. Further, the SEC's present position is flatly contradicted by its past actions. Until the instant litigation arose, the public record reveals no evidence that the SEC had ever considered the Securities Acts to be applicable to noncontributory pension plans. In 1941, the SEC first articulated the position that voluntary, contributory plans had investment characteristics that rendered them "securities" under the Acts. At the same time, however, the SEC recognized that noncontributory
In an attempt to reconcile these interpretations of the Securities Acts with its present stand, the SEC now augments its past position with two additional propositions. First, it is argued, noncontributory plans are "securities" even where a "sale" is not involved. Second, the previous concession that noncontributory plans do not involve a "sale" was meant to apply only to the registration and reporting requirements of the Securities Acts; for purposes of the antifraud provisions, a "sale" is involved. As for the first proposition, we observe that none of the SEC opinions, reports, or testimony cited to us address the question. As for the second, the record is unambiguously to the contrary.
If any further evidence were needed to demonstrate that pension plans of the type involved are not subject to the Securities Acts, the enactment of ERISA in 1974, 88 Stat., 829, would put the matter to rest. Unlike the Securities Acts, ERISA deals expressly and in detail with pension plans. ERISA requires pension plans to disclose specified information to employees in a specified manner, see 29 U. S. C. §§ 1021-1030, in contrast to the indefinite and uncertain disclosure obligations imposed by the antifraud provisions of the Securities Acts, see Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 474-477 (1977); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976). Further, ERISA regulates the substantive terms of pension plans, setting standards for plan funding and limits on the eligibility requirements an employee must meet. For example, with respect to the underlying issue in this case— whether respondent served long enough to receive a pension— § 203 (a) of ERISA, 29 U. S. C. § 1053 (a), now sets the minimum level of benefits an employee must receive after accruing specified years of service, and § 203 (b), 29 U. S. C. § 1053 (b), governs continuous-service requirements. Thus, if respondent had retired after § 1053 took effect, the Fund would have been required to pay him at least a partial pension. The Securities Acts, on the other hand, do not purport to set the substantive terms of financial transactions.
The existence of this comprehensive legislation governing the use and terms of employee pension plans severely undercuts all arguments for extending the Securities Acts to noncontributory,
We hold that the Securities Acts do not apply to a noncontributory, compulsory pension plan. Because the first two counts of respondent's complaint do not provide grounds for relief in federal court, the District Court should have granted the motion to dismiss them. The judgment below is therefore
MR. JUSTICE STEVENS took no part in the consideration or decision of these cases.
MR. CHIEF JUSTICE BURGER, concurring.
I join in the opinion of the Court except as to the discussion of the 1970 amendment to § 3 (a) (2) of the Securities Act. There is no need to deal, in this case, with the scope of the exemption, since it is not an issue presented for decision.
The Commission argues that the new exemption from the registration requirement of the Act applies to participation in a pension plan, and infers that Congress must have understood that such participation is a security which otherwise would be subject to the Act. It is not necessary to evaluate the Commission's interpretation of the exemption, however, because even if it is correct, it does not support the conclusion the Commission draws.
Second, even if a draftsman concerned with exempting a variety of interests from the registration requirement may have believed, in 1970, that certain pension interests were within the statutory definition of "security," that would have little, if any, bearing on this case. At issue here is the construction of definitions enacted in 1933 and 1934.
The briefs suggest that the construction of the 1970 amendment may be problematic. The scope of the exemption may be of real importance to someone in some future case—but it is not so in connection with this action. Accordingly, I reserve any expression of views on the issue at this time.
The definition of a "security" in § 3 (a) (10) of the Securities Exchange Act is virtually identical and, for the purposes of this case, the coverage of the two Acts may be regarded as the same. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 847 n. 12 (1975); Tcherepnin v. Knight, 389 U.S. 332, 342 (1967).
"As used in this paragraph, the term `public offering' shall not be deemed to include an offering made solely to employees by an issuer or by its affiliates in connection with a bona fide plan for the payment of extra compensation or stock investment plan for the exclusive benefit of such employees." 78 Cong. Rec. 8708 (1934).