You asked us, in response to the Agency's request, to research the laws of the States
in Region VI as those laws affect a representative payee's responsibilities for the
conservation and investment of benefit payments. The regulations provide that, after
a representative has used benefit payments for the current maintenance of the beneficiary,
any remaining amounts are to be conserved or invested on the beneficiary's behalf.
See 20 C.F.R. § 404.2045. Any such "[c]onserved funds should be invested in accordance
with the rules followed by trustees." Id. We look to state law to determine how trustees should invest funds. See POMS GN 00603.040A. Generally, states tend to follow a "prudent investor" rule.
You have asked that we examine the laws of the states in our region to determine:
(1) What investments are considered appropriate under the "prudent investor rule?"
(2) Does state law permit parent payees to invest funds belonging to their minor children
differently than other types of payees? and
(3) What rules do trustees follow when investing funds?
Our specific responses for each State are set out below.
Which types of investments are considered appropriate under the “prudent man” rule?
Arkansas codifies the prudent investor rule at Ark. Code Ann. § 28-71-105 (2001).
The trustee must use judgment and care under the circumstances then prevailing which
men of prudence, discretion, and intelligence exercise in the management of their
own affairs. Id. The investment strategy must consider the probable income, as well as the probable
safety of the trust assets. Id. Arkansas law does not indicate preference for any specific investment, but instead
permits investment in “every kind of real, personal, or mixed property and every kind of investment. . .” subject to the prudent investor standard. Ark. Code Ann. § 28-71-106 (2001). Examples
of these investments include, but are not limited to:
1) bonds, debentures, and other corporate obligations,
2) preferred or common stocks,
3) shares or interests in common trust funds,
4) and securities of any open-end or closed-end management-type investment company
or investment trust registered under the Federal Investment Company Act of 1940.
Id. The trustee may also invest in certificates of deposit and savings accounts of any
state or national bank whose deposits are insured by FDIC and whose main office is
in Arkansas. Id. If the trustee is a bank, it can invest funds in its own accounts. Id. In addition, Arkansas provides one safe harbor. A trustee does not violate the prudent
investor standard when he invests no more than 2.5% of the trust funds eligible for
investment and no more than 10% of the total trust capital in Arkansas private venture
capital projects. Ark. Code Ann. § 28-71-107 (2001).
Arkansas also adopted the Uniform Prudent Investor Act. Ark. Code Ann. 23-51-200 to
-211 (2001). Arkansas applies that Act to trust institutions. Id.
Under State law, are parent payees permitted to invest the funds belonging to their
minor children differently than other types of payees?
No special provisions apply to investments by parent payees of minor children under
What are the rules followed by trustees regarding the investment of funds with which
they are entrusted?
Arkansas trustees must “exercise the judgment and care under the circumstances then prevailing which men
of prudence, discretion, and intelligence exercise in the management of their own
affairs . . ..” Ark. Stat. § 28-71-105 (2001). Arkansas laws permit the trust settlor to grant a
wide range of powers to the trustee. Ark. Stat. Ann. § 28-69-304 (2001).