ERISA Plan-Asset “Look-Through” Treats RMBS Trust Certificates as Equity (Beneficial Trust Interests), but Not Indenture RMBS Notes Lacking Substantial Equity Features

1. Introduction

Powell v. Ocwen Fin. Corp. (2d Cir. Apr. 22, 2026) addresses a threshold ERISA question that can determine whether mortgage servicers and related entities can be sued as ERISA fiduciaries: when an ERISA plan invests in residential mortgage-backed securities (“RMBSs”), are the underlying mortgages “plan assets”?

The plaintiffs—trustees of an ERISA-governed pension fund (the “Plan”)—invested in six RMBS issuances from six trusts. Three were structured as notes issued under indentures by Delaware statutory trusts (AHM 2004-4, AHM 2005-3, HLT 2006-HI1). Three were trust certificates issued by New York law-governed REMIC trusts (CSFB 2003-27, MASTR 2003-5, GSR 2005-7F).

The trustees sued the mortgage servicer, Ocwen, and others alleging ERISA fiduciary breaches and prohibited transactions tied to servicing and related-party dealings, and sued Wells Fargo for alleged co-fiduciary failures and inadequate oversight. The key issue became whether ERISA’s fiduciary regime reached the underlying mortgage pools—i.e., whether those mortgages were “plan assets” under the Department of Labor’s plan-asset regulation, 29 C.F.R. § 2510.3-101.

2. Summary of the Opinion

The Second Circuit affirmed in part, vacated in part, and remanded:

Indenture-note RMBS (AHM 2004-4, AHM 2005-3, HLT 2006-HI1): affirmed. The notes were “indebtedness” with no substantial equity features; therefore, the Plan held only the notes as plan assets, not the underlying mortgages.
REMIC trust certificates (CSFB 2003-27, MASTR 2003-5, GSR 2005-7F): vacated. The regular-interest certificates were beneficial interests in a trust, which the regulation expressly treats as “equity interests”; thus, the court held they qualify for the regulation’s “look-through” framework (with remaining look-through prerequisites left for the district court on remand).
The court remanded for the district court to address in the first instance (i) whether the remaining conditions for the “look-through” exception are met as to the REMIC trusts and (ii) whether Ocwen acted as an ERISA fiduciary with respect to any plan assets.

3. Analysis

A. Precedents Cited

(i) ERISA plan-asset methodology, delegation, and limits on judicial improvisation

Lowen v. Tower Asset Management, Inc., 829 F.2d 1209 (2d Cir. 1987): Plaintiffs invoked Lowen’s statement that courts may disregard form for substance when ERISA would otherwise be undermined. The panel distinguished Lowen as a corporate-form/veil-piercing case and rejected the notion that courts may ignore the DOL’s plan-asset regulation simply to better serve ERISA’s remedial goals.
Kayes v. Pac. Lumber Co., 51 F.3d 1449 (9th Cir. 1995) and Acosta v. Pac. Enters., 950 F.2d 611 (9th Cir. 1991): Plaintiffs urged the Ninth Circuit’s functional “benefit to fiduciary at plan’s expense” test for identifying plan assets. The Second Circuit declined to apply that approach, emphasizing that Congress delegated the definition of “plan assets” to DOL and that the controlling inquiry is the regulation, not a free-floating functional test.
Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024): Cited to reinforce that when Congress validly delegates authority to an agency, courts must respect that delegation. Here, ERISA’s definition of “plan assets” expressly defers to the Secretary of Labor’s regulations (29 U.S.C. § 1002(42)), anchoring the court’s insistence on applying 29 C.F.R. § 2510.3-101 as written.

(ii) Debt–equity distinction as an interpretive tool for “substantial equity features”

Because the plan-asset regulation does not define “substantial equity features,” the court looked to the traditional debt–equity framework (particularly tax law’s economic-reality analysis) to decide whether RMBS notes resemble equity enough to trigger look-through treatment.

TIFD III-E, Inc. v. United States, 459 F.3d 220 (2d Cir. 2006): Provided the court’s multi-factor debt–equity approach (including an IRS-derived factor list). The opinion used TIFD III-E principally as a framework while stressing the “ultimate” inquiry is economic reality—risk exposure to performance (equity) vs. credit/insolvency risk (debt).
Gilbert v. Comm'r of Internal Revenue, 248 F.2d 399 (2d Cir. 1957): Quoted for the “classic debt” definition—fixed obligation to pay a sum certain at a fixed maturity with fixed interest payable regardless of income.
Comm'r of Internal Revenue v. O.P.P. Holding Corp., 76 F.2d 11 (2d Cir. 1935): Used to articulate the “vital difference” between equity as an “adventurer” in upside and debt as entitlement to fixed payment independent of business success.
Hewlett-Packard Co. v. Comm'r of Internal Revenue, 875 F.3d 494 (9th Cir. 2017), Fin Hay Realty Co. v. United States, 398 F.2d 694 (3d Cir. 1968), and Est. of Mixon v. United States, 464 F.2d 394 (5th Cir. 1972): Cited to confirm broad acceptance of multi-factor debt–equity tests, while emphasizing that factors are “aids” and risk allocation is central.

(iii) Trust-beneficiary doctrine and “beneficial interest” characterization

Hammond v. United States, 764 F.2d 88 (2d Cir. 1985): Cited for applying state law (here, New York law) to determine whether an interest is a “beneficial interest” in a trust.
Schoellkopf v. Marine Tr. Co. of Buffalo, 267 N.Y. 358 (1935): Provided New York’s broad definition of beneficial interest: any right under the trust instrument to receive a trust benefit, even contingent.
Jo Ann Howard & Assocs., P.C. v. Cassity, 868 F.3d 637 (8th Cir. 2017): Used (with the Restatement of Trusts) to reinforce standard trust-law meaning of “beneficiary.”
BlackRock Fin. Mgmt. Inc. v. Segregated Acct. of Ambac Assur. Corp., 673 F.3d 169 (2d Cir. 2012): Cited for the idea that certificateholders can hold rights to trust income generated by mortgage assets—supporting “beneficial interest” characterization.
Ret. Bd. of the Policemen's Annuity & Ben. Fund of the City of Chi. v. Bank of N.Y. Mellon, 775 F.3d 154 (2d Cir. 2014): Used by analogy to show RMBS certificates can qualify as “certificate[s] of interest or participation” in underlying mortgages (there, for Trust Indenture Act purposes), consistent with treating them as trust-linked interests.
Romano v. John Hancock Life Ins. Co. (USA), 120 F.4th 729 (11th Cir. 2024): Quoted to support that plan assets include property held in trust for the plan, bolstering the regulation’s express statement that beneficial interests in a trust are equity interests.

(iv) Appellate practice on alternative grounds and remand

Jusino v. Fed'n of Cath. Tchrs., Inc., 54 F.4th 95 (2d Cir. 2022) and New York ex rel. James v. Niagara-Wheatfield Cent. Sch. Dist., 119 F.4th 270 (2d Cir. 2024): Cited for the principle that the court may affirm on any supported ground but usually allows the district court to decide issues first. This supported remanding the fiduciary-status question.

B. Legal Reasoning

(i) The governing framework: DOL’s plan-asset regulation

The court began with the regulation’s “general rule”: when a plan invests in another entity, the plan’s assets include the investment itself, but not the entity’s underlying assets solely by reason of the investment. The “look-through” exception applies when the plan invests in an equity interest in a non-public, non-registered-investment-company entity (and other prerequisites), in which case the plan’s assets include an undivided interest in each underlying asset.

The dispositive question on appeal was whether each RMBS instrument the Plan purchased was an “equity interest” under 29 C.F.R. § 2510.3-101(b)(1).

(ii) Indenture RMBS notes: “no substantial equity features” means no look-through

For the indenture-issued RMBS notes, the court acknowledged “substantial equity features” is undefined and largely unlitigated in ERISA. It therefore used the traditional debt–equity distinction to determine whether the notes exposed investors to performance risk (equity-like) or merely credit/insolvency risk (debt-like).

Applying that lens, the court emphasized the notes’ core debt attributes: fixed interest, stated principal, fixed maturity, enforceable rights to payment, and—critically—no residual claim on the trust estate. The presence of separate trust certificates that “evidenc[e] the beneficial ownership interest” in the trust further reinforced that the equity-like residual interest existed elsewhere, not in the notes.

The trustees’ asserted “equity features” (thin capitalization, use of note proceeds to acquire mortgages, subordination to general creditors, and practical dependence on mortgage performance) were deemed insufficient. The court reasoned that the possibility an obligor may fail and be unable to pay is universal credit risk and cannot itself transform debt into equity; otherwise, virtually all unsecured or asset-dependent lending would be “equity.”

The court also rejected attempts to (a) invoke the regulation’s “backstop provision” in § 2510.3-101(g) because it presupposes joint ownership or equity interests, and (b) replace the regulation with a misconduct-driven functional plan-asset test (as in Kayes and Acosta), reiterating that the delegated regulatory definition controls.

(iii) REMIC regular-interest certificates: “beneficial interest in a trust” is equity by regulation

For the New York REMIC trusts, the court relied on the regulation’s explicit rule: “a beneficial interest in a trust” is an equity interest. It therefore asked a state-law trust question: are holders of the regular-interest certificates “beneficially interested” in the trust?

Reading the trust agreements, the court found the depositor conveyed the mortgage pool to the trustee “to create a trust for the benefit of the Certificateholders,” that assets and accounts were held “in trust for the exclusive use and benefit” of certificateholders, and that the documents repeatedly described the certificates—including regular-interest certificates—as representing a “beneficial ownership interest” in the trust estate. Under New York law (Schoellkopf), any right to receive a benefit from the trust qualifies as a beneficial interest—satisfied by the certificateholders’ contractual right to receive interest and principal distributions from trust collections.

The defendants’ attempt to limit “beneficiary” status to residual certificateholders failed because it contradicted the governing documents’ text identifying regular-interest certificateholders as beneficiaries.

(iv) Structural confirmation: the regulation’s special exception for guaranteed mortgage pool certificates

The court also drew support from § 2510.3-101(i), which creates a carve-out for “guaranteed governmental mortgage pool certificate[s]” so that holding such a certificate does not, by itself, make the underlying mortgages plan assets. The court reasoned this carve-out only makes sense if, absent the carve-out, mortgage-backed certificates that evidence an interest in mortgages could otherwise be treated as equity interests that trigger look-through—consistent with the court’s treatment of the REMIC trust certificates.

(v) Remand on fiduciary status

Even after finding the REMIC trust certificates to be equity interests (potentially enabling underlying mortgages to be treated as plan assets if other look-through prerequisites are met), the court declined to decide whether Ocwen’s servicing activities constituted ERISA fiduciary conduct. The district court had not reached that issue, and the panel followed its usual practice of remanding for first-instance determination.

C. Impact

Sharper instrument-by-instrument plan-asset analysis for RMBS: The decision rejects a blanket “RMBS mortgages are never plan assets” approach and requires courts to distinguish between (a) RMBS notes that are true debt and (b) RMBS trust certificates that confer beneficiary status under trust law and the regulation.
Servicer exposure increases for certain trust-certificate structures: Where a plan holds trust certificates that qualify as “beneficial interests,” plaintiffs may plausibly argue the underlying mortgage pools are plan assets (subject to satisfying additional look-through prerequisites), potentially bringing servicers and oversight parties into ERISA fiduciary/prohibited-transaction litigation.
Limits on “functional” plan-asset theories in the Second Circuit: By declining the Ninth Circuit’s functional plan-asset test and emphasizing the DOL regulation’s primacy, the opinion channels future litigation into regulatory text and state-law characterization, rather than misconduct-driven “asset” expansion.
Guidance on “substantial equity features”: Although framed as case-specific, the court’s risk-based formulation (performance risk vs credit risk) supplies a workable standard likely to shape future disputes over hybrid instruments in securitizations and structured finance.
Open issues preserved for remand and future cases: The panel explicitly left for the district court the remaining look-through criteria in § 2510.3-101(a)(2) (e.g., “significant” benefit plan investor equity participation, operating company status, etc.) and fiduciary-status questions—meaning this decision is a major gateway ruling, not an ultimate liability determination.

4. Complex Concepts Simplified

“Plan assets” (ERISA): The property ERISA protects with fiduciary duties. If something is a plan asset, persons controlling it may become ERISA fiduciaries.
DOL “plan-asset regulation” (29 C.F.R. § 2510.3-101): The rulebook for when an ERISA plan’s investment causes the plan to be treated as owning not just the investment, but also the investment vehicle’s underlying assets.
General rule vs “look-through” exception: Normally, buying an interest in an entity means you own that interest—not the entity’s underlying assets. “Look-through” is an exception that can treat the plan as owning a slice of the underlying assets, but typically only when the plan’s interest is an equity interest and other conditions are met.
Debt vs equity (as used here): Debt usually means fixed payments and no upside beyond repayment; equity usually means residual upside (and downside) tied to performance. The court treated “substantial equity features” as features that meaningfully expose the investor to performance risk, not merely the chance the borrower defaults.
“Beneficial interest in a trust”: A trust holds property for beneficiaries. If the trust documents give you a right to receive trust benefits (like distributions of collected mortgage payments), you are typically a beneficiary. The regulation then labels that beneficial interest as “equity” for plan-asset purposes.
REMIC: A tax classification for mortgage securitization trusts. Even “regular-interest” REMIC certificates (which resemble debt economically) can still be “beneficial interests in a trust” under the plan-asset regulation if the trust documents make certificateholders beneficiaries.

5. Conclusion

Powell v. Ocwen Fin. Corp. establishes (in the Second Circuit) a structured-finance-sensitive ERISA plan-asset rule: indenture-issued RMBS notes generally remain debt—without look-through—absent truly “substantial” equity-like exposure, while trust certificates in REMIC trusts may be “equity interests” because they are beneficial interests in a trust as a matter of regulatory text and trust-law characterization. The ruling materially affects ERISA litigation risk for mortgage servicers and oversight entities where ERISA plans hold trust certificates, while constraining attempts to expand “plan assets” through functional or misconduct-based theories untethered to the DOL’s regulatory definition.