Key Points

  • The court affirmed summary judgment for defendants on three indenture trust investments because the notes lack substantial equity features.
  • The court held that regular-interest certificates in REMIC trusts are beneficial interests, making underlying mortgages ERISA plan assets.
  • The case is remanded for the district court to determine whether Ocwen acted as a fiduciary with respect to the REMIC trust mortgages.
  • The decision refines the plan-asset analysis for securitized instruments, emphasizing the legal form of the investment under the DOL's regulation.

The Second Circuit affirmed in part and remanded a decision regarding whether mortgages backing residential mortgage-backed securities are plan assets under the Employee Retirement Income Security Act of 1974. The April 22, 2026 opinion in Powell v. Ocwen Fin. Corp. held that regular-interest certificates issued by three REMIC trusts qualify as equity interests, while notes issued under indenture agreements do not.

Plaintiffs, trustees of the United Food & Commercial Workers Union & Employers Midwest Pension Fund, invested in six classes of RMBSs. They alleged that defendants Ocwen Financial Corp. and affiliates, along with Wells Fargo Bank N.A., breached fiduciary duties by mismanaging the underlying mortgages. The U.S. District Court for the Southern District of New York granted summary judgment for the defendants, finding that only the RMBSs—not the mortgages—were plan assets.

The panel, in an opinion by Circuit Judge Richard J. Sullivan joined by Judges Chin and Carney, applied the Department of Labor's plan-asset regulation at 29 C.F.R. § 2510.3-101. The regulation provides that when a plan invests in an entity, the plan's assets include its investment but not the entity's underlying assets unless a 'look-through' exception applies for an 'equity interest.'

Regarding the plan's investments in three classes of notes issued under indenture agreements by Delaware statutory trusts, the panel affirmed the district court's conclusion that these notes are not equity interests. 'The notes reflect a traditional debt structure, exposing the noteholders only to classic credit risks,' the court wrote. The panel found that features such as thin capitalization or dependence on mortgage payments did not transform the notes into equity.

However, the panel reached a different conclusion for the plan's investments in regular-interest certificates issued by three New York-law REMIC trusts. The certificates stated that they represent a 'beneficial ownership interest' in the trust's estate. The regulation provides that 'beneficial interest[s] in a trust are equity interests.' The panel concluded that the trust agreements' plain language 'clearly identifies holders of the regular-interest certificates as among the trusts' beneficiaries.'

The servicers argued that only residual certificate holders are beneficiaries, but the panel rejected that view. The trust documents directed the trustee to hold the mortgage pool 'in trust for the exclusive use and benefit of all present and future Certificateholders,' which included regular-interest certificate holders. The panel also noted that the regulation includes a specific exception for guaranteed governmental mortgage pool certificates, implying that nongovernmental certificates could otherwise qualify as equity interests.

The Second Circuit therefore affirmed summary judgment for the defendants concerning the three indenture trusts, but reversed the judgment for the three REMIC trusts. It remanded for further proceedings, including whether Ocwen acted as a fiduciary with respect to the mortgages underlying the REMIC trusts—an issue the district court had not reached. 'Our preferred and usual practice is to allow the district court to address arguments in the first instance,' the panel said, declining to decide the fiduciary-status question on appeal.

The ruling clarifies that the structure of securitization vehicles matters for ERISA obligations. Notes issued under indentures do not trigger the look-through exception, but certificates that convey beneficial interests in a trust—even if they pay fixed interest and have a stated principal balance—are equity interests, subjecting the underlying mortgages to ERISA's fiduciary framework.

For litigators advising RMBS servicers or investors, the decision mandates close examination of the governing trust documents. Trust certificates that grant holders a beneficial interest can pull mortgage servicers into ERISA fiduciary liability. The case also underscores that the DOL's regulation, rather than a functional 'use-or-benefit' test, controls the plan-asset analysis in this circuit.