When a bank is a fiduciary

Banks and similar financial institutions that serve as trustees or plan administrators become fiduciaries to those plans. ERISA contains three exemptions that permit plans to use these same fiduciary/banks for normal banking services. These exemptions cover bank deposits, ancillary services and common trust funds. Banks, savings and loan associations or credit unions qualify for the exemption.

Plan assets may be invested in a deposit that bears a reasonable rate of interest at a fiduciary/bank (or similar financial institution), if expressly authorized by: (1) the plan or trust documents; or (2) a disinterested fiduciary authorized to make such investments. A plan or trust provision authorizing investments in the bank's deposits must specify the bank and its investment authority. The exemption for deposits includes payment by a plan of a penalty for premature redemption.

A fiduciary/bank (or similar institution) may provide any ancillary services to a plan under adequate internal safeguards, consistent with sound banking practices, and under specific restraining guidelines adopted by the bank or institution. The guidelines must reasonably preclude the bank from providing the services in an excessive or unreasonable manner and in a way inconsistent with the best interests of the participants and beneficiaries. Also, the plan must pay no more than reasonable compensation for the services.

Under ERISA §408(b)(8), a fiduciary/bank or trust company may purchase from or sell to a plan an interest in one of the bank or trust company's own collective or pooled trust or investment funds. The bank may receive no more than reasonable compensation and the plan instrument or an independent fiduciary must authorize the transaction.