3. Advisory Opinions

1. [Affiliates] A corporation 50% or more of which is owned by a more than 50% shareholder of the employer maintaining the plan is a party in interest. Proposed PTE I-492.
2. [Banks] A savings and loan association is not a party in interest merely because plan assets are held on deposit. AO 77-11; AO 79-10.
3. [Broker-Dealers] Broker-dealers who execute securities transactions for plans are parties in interest. AO 76-76.
4. [Custodians] Custodians of plan assets are parties in interest. AO 76-76; PLR 7907091.
5. [Employer] Employers are parties in interest. WSB 77-14; PLR 7847034. Directors of an employer are parties in interest. WSB 77-14. An employer council is a party in interest because it acts on behalf of employers. AO 76-103.
6. [Employer] An employer of employees covered by the plan is a party in interest pursuant to ERISA Section 3(14)(C) even if it is merely an affiliate or subsidiary of the employer plan sponsor. Thus, absent a statutory or administrative exemption, the exchange of common stock for preferred stock and the cancellation of a note in connection therewith as a transaction between the affiliate corporation and the plan would constitute a prohibited transaction under Section 406(a)(1)(A). AO 81-34A.
7. [Insurance Companies] Insurance companies are not parties in interest merely because they issue group insurance policies to plans. AO 76-36.
8. [Mergers & Acquisitions] A corporation proposes to acquire all of an unrelated third party's assets. In connection therewith, the, acquiring corporation will not assume, adopt or maintain the existing plan of the corporation to be acquired. The acquiring corporation desires to purchase or lease a building owned by the plan. Certain employees of the acquired corporation will become employees of the acquiring corporation. The term party in interest includes in Subsection (c) an employer any of whose employees are covered by the plan. However, the definition of an employer under Section 3(14)(C) must be viewed in light of the overall statutory framework of ERISA, including Section 3(5). That section provides in relevant part that the term "employer" means any person acting directly as an employer or indirectly in the interest of an employer in relation to an employee benefit plan. Since the acquiring corporation had no relationship with the plan in the past and will not assume, maintain or adopt the plan or its accompanying trust after the acquisition, that entity is not a Section 3(14)(C) "party in interest" to the plan upon its acquisition of substantially all of the plan sponsor's assets. Advisory Opinion 81-78A.
9. [Ownership] A person is not a 50% owner of a corporation or partnership under Section 3(14)(G) if such 50% ownership interest will not be acquired until sometime in the future. AO 75-147; AO 77-83.
10. [Partners] Section 3(14)(I) applies only to 10% partners in a party in interest, not 10% partners with a party in interest in a partnership that is not itself a party in interest. AO 75-147; AO 77-83.
11. [Relatives] Relatives are parties in interest. AO 75-137.
12. [Service Providers] Service providers are parties in interest even if they receive no compensation from the plan. WSB 78-17. However, a person who only provides services to the employer before the plan is established is not a party in interest. AO 76-65.
13. [Trustees] Trustees of a plan and employees of a trustee are parties in interest. AO 77-84.
14. [Unions] Unions are parties in interest. AO 76-91; WSB 78-25. Employees of a union are parties in interest. AO 76-91. However, the mere fact that union officers are also directors and employees of a corporation does not make such corporation a party in interest. AO 76-120.

4. Court Decisions

1. The brother of a fiduciary is not a relative under Section 3(15) and, therefore, is not a party in interest under Section 3(14)(F). AO 77-05.

1. Conference Report

The Congressional Conference Report does not discuss the definition of the term "adequate consideration."

2. Regulations

DOL ERISA Regulation 2510.3-18(b) was proposed in 1988 but has not yet been adopted. It provided guidance on how thinly-traded securities should be valued.

3. Advisory Opinions

1. In the absence of regulations under Section 3(18), securities for which there is no generally recognized market should be valued by the trustees or other appropriate plan fiduciary by making a good faith determination of the fair market value of the securities, utilizing recognized methods of determining value. AO 75-141; AO 76-16.
2. If securities are publicly traded in the over-the-counter market and if there are current bid and asked prices quoted by persons independent of the issuer and of any party in interest, a plan may not purchase a controlling block of stock at a price greater than such current bid and asked prices. AO 76-52.
3. Reliance by a plan trustee on a ruling received from the IRS that a method of determining the fair market value of book value shares constitutes a reasonable method of determining fair market value for purposes of Treasury Regulation 1.421-7(e)(2) would be considered evidence that the trustee's determination of fair market value was made in good faith for purposes of Section 3(18)(B). AO 77-35.

4. Court Decisions

1. Conference Report

See the discussion of the term "fiduciary" at page 323 of the Congressional Conference Report.

2. Regulations

1. Refer to DOL Regulation 2510.3-21 and IRS Regulation 54.4975-9.
2. The regulation clarifies the applicability of the definition fiduciary to persons who provide investment advice to plans and to securities brokers and dealers who execute securities transactions for plans. DOL Regulation 2510.3-21(c)-(e).
3. A person is a fiduciary only to the extent of his or her fiduciary responsibilities to a plan. DOL Regulation 2510.3-21(c)(2), (d)(2).
4. As a general matter, a person (e.g., a securities broker) is not a fiduciary to a plan if he or she does not know, and has no reason to know, that he or she is acting for a plan. Preamble to DOL Regulation 2510.3-21(c)-(e).
5. A fee or other compensation, direct or indirect, for the rendering of investment advice to a plan, within the meaning of Section 3(21)(A)(ii), should be deemed to include all fees or other compensation incident to the transaction in which the investment advice to the plan has been rendered or will be rendered. This may include, for example, brokerage commissions, mutual fund sales commissions and insurance sales commissions. Preamble to DOL ERISA Regulation 2510.3-21(c)-(e).
6. Depending on the facts and circumstances, a sales presentation and recommendations made to a plan fiduciary by an insurance agent or broker, pension consultant or mutual fund principal underwriter in connection with insurance or annuity contracts or mutual funds may constitute investment advice under Section 3(21). Preamble to DOL ERISA Regulation 2510.3-21(c)-(e).
7. A person who exercises discretion in the administration of a plan by making final decisions on appeals from claim denials is a fiduciary to the plan under Section 3(21)(A)(iii) even if the plan documents fail to state do the person is a named fiduciary or merely a fiduciary. Preamble to DOL ERISA Regulation 2560.503-1 (Claims Procedure).

3. Interpretive Bulletins

1. [Trustees] A plan trustee and a plan administrator are plan fiduciaries because of the nature of their functions for a plan. IB 75-8, Question D-3.
2. People who perform purely ministerial functions for a plan within a framework of policies, interpretations, rules, practices and procedures made by others are not fiduciaries under Section 3(21). IB 75-8, Question D-2. This question contains examples of purely ministerial functions.
3. An officer, director, or employee of an employer maintaining a plan will not be a fiduciary for the plan, unless he or she has or exercises any of the authority, responsibility or control described in Section 3(21)(A) or provides investment advice to the plan for a fee or other compensation. IB 75-8, Questions D-4 and D-5.
4. An attorney, accountant, actuary, or consultant for a plan who neither exercises nor has any of the responsibilities, authority or control described in Section 3(21)(A), and who does not provide investment advice to the plan for a fee or other compensation, is not a fiduciary to the plan under Section 3(21). IB 75-5, Question D-1.
5. A person who merely calculates the amount of benefits to which a participant is entitled in accordance with a formula contained in a plan document is not a fiduciary under Section 3(21). However, a person who has the final authority to authorize or disallow claims for benefits based on an interpretation of plan provisions relating to eligibility for benefits would be a fiduciary under Section 3(21). IB 75-8, Question D-3.

4. Prohibited Transaction Class Exemptions (PTE)

1. [Broker-Dealers] Where a broker-dealer acts as an investment adviser in recommending securities transactions and a second fiduciary decides whether each such transaction should be entered into, the broker-dealer may be a fiduciary by reason of providing investment advice within the meaning of ERISA Section 3(21)(A)(ii) and Code Section 4975(e)(3)(B). However, since he or she would not have the power to manage, acquire, or dispose of plan assets without the approval of the second fiduciary, he or she would not be an investment manager as that term is defined in ERISA Section 3(38). Final PTE C 78-10.
2. [Investment Advisor] A person may be a fiduciary by reason of being an investment adviser even if such person does not exercise investment discretion as that term is defined by the Securities and Exchange Commission under Section 3(a)(35) of the Securities Exchange Act of 1934. Final PTE C 78-10.

5. Advisory Opinions

1. The term "investment discretion" is defined in Section 3(a)(35) of the Securities Exchange Act of 1934. In general, a person who exercises investment discretion for a plan under that definition would also be a fiduciary with respect to the plan as defined in Section 3(21) of ERISA and Section 4975(e)(3) of the Code. A person also would also be a fiduciary as the result of rendering investment advice for compensation to a plan. Proposed Extension of Paragraph I(a) of PTE C 75-1.
2. [Banks] The mere fact that a plan invests in a savings account or certificate of deposit of a savings and loan association does not make the association a plan fiduciary. AO 77-11; AO 79-10.
3. [Custodians] A custodian of plan assets who has no discretionary authority or control over the management of the plan or the disposition of the assets, and who does not provide investment advice to the plan, is not a fiduciary under Section 3(21)(A). PLR 7907091.
4. [Insurance Companies] An insurance company maintaining a separate account in which a plan invests is a fiduciary to the plan. Proposed PTE C 78-19.
5. [Investments] A partnership in which a plan has invested does not become a plan fiduciary merely by reason of such investment. WSB 78-17.
6. [Plan Committee Members] The individuals serving on one investment committee of a plan with responsibility for managing plan assets and appointing investment managers for the plan are fiduciaries under Section 3(21)(A). AO 76-15.
7. [Trust Department Staff] A person who merely makes a report to plan fiduciaries on a plan's asset management staff and serves on a committee that advises Plan fiduciaries on plan investment policies and objectives will not be a plan fiduciary under Section 3(21)(A) or ERISA Regulations Section 2510.3-21. AO 77-68.
8. The advice and recommendations made to plans and plan fiduciaries by insurance agents and brokers, pension consultants and mutual fund principal underwriters (or their employees) regarding plan purchases of insurance contacts or annuities or mutual fund shares constitutes advice as to the value of securities or other property or recommendations as to the advisability of investing in, purchasing or selling securities or other property and could constitute investment advice so as to classify the persons who furnish such advice as fiduciaries if it is rendered under certain circumstances. Proposed PTE C 77-9; WSB 79-99.

6. Court Decisions

1. Conference Report

See coverage of this provision on pages 296-297 of the Congressional Conference Report.

2. Interpretive Bulletins

1. Conference Report

Page 302 of the Congressional Conference Report discusses the term investment manager.

2. Interpretive Bulletins

1. A person who is not registered under the Investment Advisers Act of 1940 because of an exemption from registration under that act (and who is not a bank or an insurance company) may not be an investment manager. IB 75-5, Question FR-6.
2. A person cannot be an investment manager if his or her application for registration under the Investment Advisers Act is still pending. IB 75-5, Question FR-7.

3. Advisory Opinions

1. An entity is an investment manager as defined in Section 3(38) of ERISA if it meets the three tests set forth in the statute.
2. A person can be both a named fiduciary and an investment manager provided that, as named fiduciary, such person does not have the power on behalf of the plan to appoint himself or herself or monitor his or her own performance as investment manager. AO 77-69/70.
3. A person who is registered only as a broker-dealer under the Securities Exchange Act of 1934 cannot serve as an investment manager. AO 76-20.

4. Court Decisions

1. Where an investment management firm had broad powers to manage plan assets, was registered as an investment adviser under the Investment Advisers Act of 1940, and had explicitly acknowledged itself as a fiduciary to the plan in its employment contract, it is considered an investment manager as defined in ERISA, regardless of any oral modifications of the agreement. Lowen v. Tower Asset Management, Inc, 829 F.2d 1209, 8 EBC 2457 (2d Cir. 1987).
2. Where an investment management company was not registered as an independent adviser under the Investment Advisers Act of 1940, was not a bank or insurance company, and had not acknowledged itself in writing as a fiduciary to the plan, it is not considered an investment manager as defined in ERISA. The trustee of an ESOP may not claim a defense under ERISA Section 405(d)(1). Whitfield v. Cohen, 682 F.Supp. 188, 9 EBC 1739 (S.D.N.Y 1988).

These provisions are discussed on pages 255-256 of the Congressional Conference Report.

1. Conference Report

All the fiduciary responsibilities imposed by Section 404(a)(1) are discussed at pages 302-305 of the Congressional Conference Report.

2. Regulations

3. Interpretive Bulletins

1. Social Investments ("Economically Targeted Investments") (ETIs). Establishes DOL’s position on permissibility of making investments which achieve a social goal in addition to a financial return. The IB indicates that ETIs are not prohibited by ERISA, and that their choice as an investment must follow DOL ERISA regulation 2550.404a-1 regarding Investment Duties, be prudent, not be a prohibited transaction, and not provide less return to a plan than a normal investment. IB 94-1.
2. Proxy Voting. Among the fiduciary responsibilities of an investment manager are those to vote proxies for stock owned by ERISA plans. IB 94-2.
3. Investment Policies. An investment policy designed to further the purposes of a plan and its funding policy is consistent with, but not required by, ERISA 404(a)(1)(A) and (B). IB 94-2.

4. Advisory Opinions

1. Pursuant to ERISA Procedure 76-1 and particularly Section 5.02(o), the Department of Labor ordinarily will not issue advisory opinions on ERISA Section 404(a). AO 80-13A.
2. Service by a bank as trustee of a plan that has a significant portion of its assets invested in employer securities, while the bank is also a substantial secured creditor of the employer, may constitute a violation of Section 404(a)(1) by the bank. AO 76-32.

5. Court Decisions

1. [Effective Date] Actions by fiduciaries occurring after 1974 are not insulated from ERISA coverage merely because the roots of such action can be traced to an event prior to the effective date of ERISA. Marshall v. Craft, 463 F. Supp. 493 (N.D.Ga. 1978); Marshall v. Dekeyser, 485 F. Supp. 629, 1 EBC 1898 (W.D.Wis. 1979).
2. [Exemption Applicability] Exemptions from the prohibited transaction restrictions have no effect on the basic fiduciary responsibility rules of Section 404(a)(1). Marshall v. Dekeyser, 485 F.Supp. 629, 1 EBC 1898 (W.D.Vas. 1979).
3. [Precedent] Section 404(a)(1) codifies the common law rule that a trustee owes individual loyalty to the beneficiaries. Although trustees should carefully consider all recommendations submitted by the parties who appointed them, trustees are bound to exercise their independent judgment when making decisions in the administration of the trust. Sheet Metal Workers' International Association v. Central Florida Sheetmetal Contractors Association, 234 NLRB (CCH) No. 162 (1978).
4. [Precedent] ERISA Section 404 essentially codified the strict fiduciary standards that trustees under Section 302 of the Labor-Management Relations Act must meet. The legislative history of ERISA demonstrates that any employee benefit fund trustee is a fiduciary whose duty to the trust beneficiaries must overcome any loyalty to the interest of the plan that appointed him. N.L.R.B. v. Amax Coal Co., 453 U.S. 322,107 L.R.R.M. (BNA) 2769, 91 Lab. Cas. (CCH) Para 12,821, 2 EBC 1489 (1981).
5. [Bank Stock - Purchase/Retention/Sale of Fiduciary Bank/BHC Stock] The discretionary purchase, retention, or sale of the stock of the fiduciary bank is imprudent. DOL indicates that "it burdens our imagination to envision a situation in which a trustee with investment discretion could make an objective decision, solely on the basis of the prudence standard, regarding the purchase or sale of its own stock." [emphasis added] See 1980 letter from DOL to OCC. Also see AO 88-9 regarding self-directed IRA purchases and AO 88-28 covering self-directed IRA purchases on an initial public offering (IPO) from a mutual-to-stock thrift conversion, and AO 92-23 which permits non-discretionary purchase and retention of holding company stock.
6. [Exclusive Purpose] The statutory phrase, "solely in the interest" is, at least in part, a codification of the most fundamental duty traditionally owed by a trustee - the duty of loyalty. Accordingly, a fiduciary bears a heavy burden in justifying his conduct in situations where his interests or the interests of others come into conflict with those of plan beneficiaries. Marshall v. Snyder, 430 F. Supp. 1224 (S.D.N.Y. 1977), aff'd in part, rev'd in part, 572 F.2d 894 (2d Cir. 1978).
7. [Exclusive Purpose] A plan's administrator who is also an officer for the corporate employer, as a fiduciary has a duty to avoid putting himself in a position where he may be forced to compromise his duty of complete loyalty to the plan to act on the employer's behalf. Amato v. Western Union International, Inc., 773 F.2d 1402, 6 EBC 2226 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113 (1986). Contra Ashenbaugh v. Crucible, Inc., 854 F.2d 1516, 9 EBC 2560 (3d Cir. 1988).
8. [Exclusive Purpose] ERISA Section 404(a)(1) and subsection (a) require a fiduciary to act solely in the interest of the participants and beneficiaries of a plan and for the exclusive purpose of paying plan benefits at a reasonable cost. One who, in his capacity as a trustee, attempts to prevent a trust from suing him for substantial damages cannot reasonably be said to do so solely for the interest or for the exclusive purpose of benefiting others. Iron Workers Local No. 272 v. Bowen, 624 F.2d 1255 (5th Cir. 1980).
9. [Exclusive Purpose] Preferential effect of trustees' decision alone does not constitute a violation of Section 404(a) of ERISA. Id.
10. [Exclusive Purpose] Where trustees resolve to extend plan coverage to themselves as trustees and participants in the plan and paid themselves benefits of the plan, such self-dealing conduct was improper and a violation of fiduciary duty under ERISA Section 404(a)(1)(A) and (D). Donovan v. Daugherty, 550 F.Supp. 390, 3 EBC 2079 (S.D.Ala. 1982).
11. [Exclusive Benefit] An employer that creates a retirement program that encourages early retirement, thereby reducing the workforce at overstaffed facilities, does not violate the exclusive purpose duty because of the consequential benefit of enhanced efficiency to the employer. Trenton v. Scott Paper Co., 832 F.2d 806, 45 Fair Empl. Prac. Case (BNA) 327, 45 Empl. Prac. Dec. (CCH) 137,744, 9 EBC 1075 (3d Cir. 1987), cert. denied, 108 S. Ct. 1576, 9 EBC 1968 (1988).
12. [Exclusive Benefit] A fiduciary who pays himself a sales commission from plan assets in the sale of plan property despite the lack of any obligation on the part of the plan to pay the commission violates Section 404(a)(1). Marshall v. Kelly, 465 F. Supp. 341, 1 EBC 1850 (W.D.Okla. 1978).
13. [Exclusive Benefit] Where the sale of ownership of the employer is likely to have an impact on the plan's ability to obtain payment on employer notes held by the plan, which, in turn, is likely to affect the plan's ability to pay benefits under the plan, the plan trustees' duties of loyalty and prudence require them to advise the participants of the full facts concerning the sale. Marshall v. Dekeyser, 485 F. Supp. 629, 1 EBC 1898 (W.D.Wisc. 1979).
14. [Exclusive Purpose - Arbitrary & Capricious] Because the potential burden of per se personal liability for any violation of ERISA might deter capable persons from serving as trustees of benefit plans, Section 404 of ERISA does not establish a per se rule of fiduciary conduct and a trustee's decision to cancel past service credits will not be overturned unless it is arbitrary and capricious. Fentron Industries, Inc v. Shopmen Pension Fund, 674 F.2d 1300, 34 Fed. R. Serv.2d 281, 94 Lab. Cas. (CCH) Para 113,559, 3 EBC 1323 (9th Cir. 1982).
15. [Exclusive Purpose - Arbitrary & Capricious] In reviewing the propriety of trustees' action, the judicial standard is whether the trustees acted in an arbitrary and capricious manner or abused their discretion. Robinson v. Central States Pension Fund, 572 F.2d 1208 (8th Cir. 1978). To the same effect: see Robinson v. United Mine Workers, 449 F. Supp. 941 (D.D.C. 1978); Shaw v. Kruidenier, 620 F.2d 307 (8th Cir. 1980); Mosley v. The National Maritime Union Pension and Welfare Plan, 451 F. Supp. 226 (E.D.N.Y. 1978); Taylor v. Bakery and Confectionery Welfare Fund, 455 F. Supp. 816 (E.D.N.C. 1978); Peters v. Operating Engineers Pension Fund, No. CV 76-3747-FW, slip op. (D.C.Cal., April 14, 1979); Bayles v. Central States Pension Fund, 602 F.2d 97 (5th Cir. 1979); Vaughn v. Metal Lathers Local 46 Pension Fund, No. 78 Civ. 2170 (S.D.N.Y. June 14, 1979). To the contrary, see Winpisinger v. Aurora Corporation Illinois, 456 F. Supp. 559 (N.D. Ohio 1978) (standard for judicial review is whether trustees complied with their ERISA fiduciary responsibilities). See also Pierce v. NECA-IBEW Welfare Trust Fund, 488 F. Supp. 559 (E.D.Tenn. 1978), aff'd, 620 F.2d 589 (6th Cir.), cert. denied, 449 U.S. 1015 (1980).
16. [ESOP] While an ESOP fiduciary may be released from certain per se violations on investments in employer securities under the provisions of ERISA Sections 406 and 407, the structure of ERISA itself requires that in making an investment decision of whether or not a plan's assets should be invested in employer securities, an ESOP fiduciary, just as fiduciaries of other plans, is governed by the solely-in-the-interest and prudence tests of Sections 404(a)(1)(A) and (B). Eaves v. Penn, 587 F.2d 453 (10th Cir. 1978).
17. [ESOP] Trustee's failure to conform stock ownership plan to Treasury requirements applicable to ESOPs in effect at the time of plaintiff's termination was not a breach of fiduciary duty under Section 404(a)(1) of ERISA for which a beneficiary may sue when defendant's stock ownership plan never functioned as an ESOP within the meaning of ERISA regulations. Allen v. The Katz Agency, Inc. Employee Stock Ownership Plan, 677 F.2d 193, 3 EBC 1352 (2d Cir. 1982).
18. [Plan Management] Corporate shareholders and directors, who are also pension plan investment managers and custodians violated their fiduciary duties when they refused to attend meetings of the shareholders, board of directors and trustees, thereby preventing any action in favor of the plan while also opposing the sale of shares of preferred hospital stock to the plan. Schoenholtz v. Doniger, 628 F. Supp. 1420, 7 EBC 1501 (S. D. N. Y. 1986).
19. [Plan Management] An insurance company that possesses the ultimate responsibility to grant or deny claims is a fiduciary under ERISA and must comply with the fiduciary duties enumerated in Section 404. Wickman v. Northwestern National Life Insurance, 9 EBC 1482 (D. Mass. 1987).
20. [Plan Management] An operator of a corporation's pension plan, who is also controlling the corporation in receivership, does not violate any fiduciary duties by amending the plan, freezing the accrual of benefits, returning excess funds to the corporation, and terminating the plan in accordance with the state court's appointment order and ERISA. Chait v. Bernstein, 645 F. Supp. 1092, 8 EBC 1126 (D.N.J. 1986), aff'd, 835 F.2d 1017, 9 EBC 1257 (3d Cir. 1987).
21. [Contributions] Corporate president violated his fiduciary duties when he failed to forward employer contributions and employee contributions, although they were deducted from employee paychecks; failed to notify employees that contributions had not been forwarded; allocated the monies to corporate expenses; and assumed conflicting roles of fiduciary and an officer of a struggling corporation. PBGC v. Solmsen, 671 F. Supp. 938, 9 EBC 1391 (E.D.N.Y 1987).
22. [Loans] Where trustees did not hold the local's proposal for a "loan at arm's length and compare it to other available investments, but instead did their best to accommodate" the local's needs, they violated ERISA Section 404(a)(1)(A)(i). Davidson v. Cook, 567 F. Supp. 225, 4 EBC 1816 (E. D. Va. 1983).
23. [Loans] A trustee breaches its fiduciary obligations by (1) making loans of plan assets under terms more favorable to the debtor than the plan and then not collecting the balance due; (2) allowing loans of plan assets to a debtor with an unproven business record and unstable financial condition; (3) lending an unreasonably large portion of loan assets to one entity and then concealing the existence of such loans; and (4) failing to adhere to guidelines in plan requiring that loans be at a reasonable rate of interest with adequate collateral. Brock v. Gilliken, 677 F. Supp. 398, 9 EBC 1803 (E.D.N.C. 1987).
24. [Loans] A fiduciary who makes or renews loans of plan assets based on inadequate security and at a lower interest rate than contemporaneous loans to others, and who fails to pursue timely repayment of principal and interest and to enforce the security agreement violates Section 404(a)(1). Marshall v. Kelly, 465 F. Supp. 341, 1 EBC 1850 (W.D.Okla. 1978); Marshall v. Dekeyser, 485 F. Supp. 629, 1 EBC 1898 (W.D.Wis. 1979).
25. [Loans/Leases] Pension fund trustees do not breach their fiduciary duties when they approve the construction of an office building after seeking advice from three legal firms, professional engineers, architects, appraisers, contractors and, in addition, eliminate certain aspects or demand cheaper designs when the project appears over budget. Furthermore, a lease agreement with a union that contains certain favorable terms for the union, while also benefiting the plan participants and beneficiaries, does not make the transaction imprudent when the trustees' decisions are calculated to benefit the fund members. Donovan v. Walton, 609 F.Supp. 1221, 6 EBC 1677 (S.D.Fla. 1985), aff'd, Brock v. Walton 794 F.2d 586, 7 EBC 1769, reh'g denied, 802 F.2d 1399 (11th Cir. 1986).
26. [Mergers & Acquisitions] A corporation which, through its pension board, acts as a fiduciary for the employee pension plan, does not breach its fiduciary duties when a purchase agreement selling a division of the company provides for the transfer of all assets, properly allocable under ERISA, to the trustees of the successor corporation's pension plan, provided the sale was not to avoid any unfunded pension obligations. United Steelworkers 2116 v. Cyclops Corp., 653 F. Supp. 574, 8 EBC 1194 (S.D.Ohio 1987), aff'd in part, vacated in part, 860 F.2d 189, 10 EBC 1345 (6th Cir. 1988).
27. [Mergers & Acquisitions] Pension plan fiduciary, who liquidated stock of one corporation to buy shares of another corporation to further his own corporate expansion goal without any effort to seek independent analysis to examine further investment opportunities, does not satisfy the prudent person test. Sandoval v. Simmons, 622 F.2d Supp. 1174, 6 EBC 2161 (C.D.Ill. 1985).
28. [Service in Dual Capacities: Lender and Plan Trustee] Prior to naming a bank as plan trustee, an ERISA plan had invested $796,000 in unsecured notes issued by Supreme Finance (Supreme), a used car finance company. During this time, the bank had extended a $3 million secured line of credit to Supreme. After being named trustee, the bank refused to renew its line of credit because of Supreme's financial difficulties. At the same time, the bank gave notice of resignation as trustee. Supreme subsequently filed for bankruptcy and the only assets remaining were applied to the bank's loan. The federal district court found, and was upheld on appeal, that:

1. The bank's acceptance of the trusteeship did not violate ERISA because -

1. nowhere does ERISA explicitly prohibit a trustee from holding positions of dual loyalties, and
2. the act did not cause the plan's losses.

2. The bank's decision not to renew Supreme's line of credit did not violate ERISA. The court noted that a fiduciary serving in both corporate and fiduciary capacities may make decisions in its own benefit without violating its fiduciary duty to the plan.

29. [Summary Plan Disclosure] ERISA Section 404(a)(1) imposes a duty to provide employees with a comprehensive explanation of the plan. However, it does not impose an affirmative duty to alert an individual participant as to the vesting requirements of the plan once that individual notifies fiduciaries that he was "thinking of retirement." Schlomchik v. Retirement Plan of Amalgamated Insurance Fund, 502 F. Supp. 240 (E.D.Pa. 1980), aff'd, 671 F.2d 496 (3d Cir. 1981).

1. Interpretive Bulletins

1. A vacation plan may pay all or any portion of the benefits to which a plan participant or beneficiary is entitled to a third party without violating Section 404(a)(1)(A) if (a) the plan documents expressly provide for such payments to third parties at the direction of a participant or beneficiary, (b) the participant or beneficiary directs in writing that the plan trustees pay a named third party all or a specified portion of the sum of money that would otherwise be paid to the participant or beneficiary, and (c) payment is made to the third party only when or after the money would otherwise be payable to the participant or beneficiary. IB 78-1.
2. Social Investments ("Economically Targeted Investments") (ETIs) Establishes DOL position on permissibility of making investments which achieve a social goal in addition to a financial return. Indicates that ETIs are not prohibited by ERISA, and that their choice as an investment must follow DOL ERISA regulation 2550.404a-1 regarding Investment Duties, be prudent, not be a prohibited transaction, and not provide less return to a plan than a normal investment. IB 94-1.
3. Proxy Voting. Among the fiduciary responsibilities of an investment manager are those to vote proxies for stock owned by ERISA plans. IB 94-2.
4. Investment Policies. An investment policy designed to further the purposes of a plan and its funding policy is consistent with, but not required by, ERISA 404(a)(1)(A) and (B). IB 94-2.

2. Advisory Opinions

1. Payments by a plan for services rendered by a person prohibited from being employed in any capacity by the plan may violate Section 404(a)(1)(A). AO 75-90.
2. If a participant or beneficiary in Plan A refuses to repay an erroneous overpayment of benefits to Plan A, the fiduciaries of Plan B, a related plan, would fail to be acting solely in the interests of the plan's participants and beneficiaries if they attempted to penalize the participant or beneficiary by delaying or reducing benefits under Plan B. AO 77-07.
3. A plan provision authorizing reimbursement of legal fees in the event of any legal action that may arise from the performance of a trustee's fiduciary duties is too broad and would be prohibited under Section 404(a)(1)(A). Where a fiduciary is found in a legal proceeding to have violated his fiduciary duties, reimbursement of legal fees by the plan would not be permitted. AO 78-29.

3. Court Decisions

1. [Provide Benefits] Dividing pension benefits, once they are being paid out, between a participant and his divorced spouse does not violate Section 404(a)(1)(A). Campa v. Campa, 89 Cal. App.3d 113C (1st Dist. 1979), appeal dismissed, Carpenters Pension Trust Fund for Northern California v. Campa, 444 U. S. 1028 (1980).
2. [Provide Benefits] The payment of rent on behalf of the widow of a former plan trustee constitutes a violation of Section 404(a)(1)(A) even though the payment was morally commendable and not made for the personal gain of plan fiduciaries. Marshall v. Cuevas, I EBC 1580 (D.P.R. 1979).
3. [Provide Benefits] Where a plan participant has nonforfeitable vested pension rights under the plan, the plan administrative committee's denial of those rights; based on a retroactive plan amendment adopted by the plan sponsor violated the administrative committee's fiduciary duty to pay benefits when due. Fox v. Abrams, No. CV 77-881-ALS, slip op. (C.D.Cal. 1978).
4. [Exclusive Purpose] Plan monies, even if they constitute surplus assets, must be applied for the exclusive purpose of plan participants and beneficiaries. Marshall v. Snyder, 430 IF. Supp. 1224 (S.D.N.Y. 1977), aff'd in part, rev'd in part, 572 F.2d 894 (2d Cir. 1978).
5. [Exclusive Purpose] Where a plan trustee fails to keep adequate records of the plan's financial obligations, questions of whether the plan owes money to the trustee should be resolved in favor of the plan. Marshall v. Kelly, 465 F. Supp. 341, 1 EBC 1850 (W.D.Okla. 1978).
6. [Exclusive Purpose] Lease by a plan of an aircraft unnecessary for plan operation violates Section 404(a)(1). Usery v. Wilson, 3-76-373 (E.D.Tenn. 1977) (consent order).
7. [Exclusive Purpose] Purchase by a multiemployer plan of individual automobile insurance policies for plan trustees and employees violates Section 404(a)(1)(A). Usery v. Wilson, 3-76-373 (E.D.Tenn. 1977) (consent order).
8. [Reasonable Expenses] Payments of in excess of $1 million over a two and one-half year period by a multiemployer plan to an individual for administrative services constitutes excessive compensation in violation of Section 404(a)(1)(A). Marshall v. Snyder, 430 F. Supp. 1224 (S.D.N.Y. 1977), aff'd in part, 572 F.2d 894 (2d Cir. 1978). To the same effect, see Marshall v. Knee, No. C-3-7793 (S.D.Ohio 1977) (complaint).
9. [Reasonable Expenses] A fiduciary who causes a plan to pay excessive amounts for the construction of a building on plan property violates Section 404(a)(1)(A). Marshall v. Kelly, 465 F. Supp. 341, 1 EBC 1850 (W.D.Okla. 1978).

1. Refer to DOL ERISA Regulation 2550.404a-1.

1. The regulation sets forth guidelines for plan fiduciaries for compliance with the prudence requirement in connection with their investment duties.
2. As a general rule, a fiduciary, in connection with his or her investment duties, is required to give appropriate consideration to those facts and circumstances that, given the scope of such fiduciary's investment duties, the fiduciary knows or should know are relevant to the particular investment or investment course of action involved. This includes consideration of the role an investment is intended to play in the plan's investment portfolio for which the fiduciary has investment duties.
3. The regulations also set forth a safe harbor rule. If a fiduciary complies with the safe harbor rule, the Labor Department will presume that the fiduciary has complied with the prudence requirement.

1. To determine that the investment is reasonably designed as part of the portfolio (or the portion of the plan's portfolio) for which the fiduciary has investment duties) to further the purposes of the plan, taking into account the investment's risk of loss and opportunity for gain; and
2. To consider the portfolio's (or portion of the portfolio's) -

1. Diversification,
2. Liquidity and current return relative to plan cash flow, needs, and
3. Projected return relative to plan funding requirements.

3. Interpretive Bulletins

1. A plan fiduciary responsible for appointing trustees or other plan fiduciaries should periodically review the performance of such trustees or other fiduciaries. The procedure for review may vary according to the circumstances. IB 75-8, Question FR-17.
2. Plan fiduciaries may rely on information and data supplied by non-fiduciaries in discharging their fiduciary duties. IB 75-8, Question FR-11.
3. Social Investments ("Economically Targeted Investments") (ETIs) Establishes DOL position on permissibility of making investments which achieve a social goal in addition to a financial return. Indicates that ETIs are not prohibited by ERISA, and that their choice as an investment must follow DOL ERISA regulation 2550.404a-1 regarding Investment Duties, be prudent, not be a prohibited transaction, and not provide less return to a plan than a normal investment. IB 94-1.
4. Proxy Voting. Among the fiduciary responsibilities of an investment manager are those to vote proxies for stock owned by ERISA plans. IB 94-2.
5. Investment Policies. An investment policy designed to further the purposes of a plan and its funding policy is consistent with, but not required by, ERISA 404(a)(1)(A) and (B). IB 94-2.

4. Advisory Opinions

1. [General] Section 404(a)(1)(B) does not absolutely prohibit any general type of investment. Whether an investment is prudent depends on the nature of the investment and the character and aims of the plan. AO 75-83.
2. [Bank Stock - Purchase/Retention/Sale of Fiduciary Bank/BHC Stock]: The discretionary purchase, retention, or sale of the stock of the fiduciary bank is imprudent. DOL indicates that "it burdens our imagination to envision a situation in which a trustee with investment discretion could make an objective decision, solely on the basis of the prudence standard, regarding the purchase or sale of its own stock." [emphasis added] See 1980 letter from DOL to OCC. Also see AO 88-9 regarding self-directed IRA purchases and AO 88-28 covering self-directed IRA purchases on an initial public offering (IPO) from a mutual-to-stock thrift conversion, and AO 92-23 which permits non-discretionary purchase and retention of holding company stock.
3. [Mortgage Valuations] Plan fiduciaries will be acting prudently under Section 404(a)(1)(B) if they value plan assets consisting of real estate mortgage loans that the plan has no current intention of selling and that are not financially troubled at the remaining principal balance of the loan. Financially troubled loans should be valued on the basis of any guarantees, security or other factors that a prudent person would deem relevant. AO 77-78; AO 77-81.
4. [DOL Investigations] Where the Labor Department is already conducting an investigation of plan investments, the new investment managers for the plan will be acting prudently under Section 404(a)(1)(B) if they report any breaches of fiduciary duties by others of which they become aware to the plan trustees and to the Labor Department and make available to the Labor Department all information requested about past transactions. AO 77-60/61; AO 77-79/80.

• If the plan requires investment in employer securities, the trustee must comply unless "compliance would be impossible or illegal" or a court approves a deviation.

• If investment language is permissive, "the fiduciary must still exercise care, skill, and caution in making decisions to acquire or retain the investment." In such permissive situations, the fiduciary is presumed to have complied with ERISA in purchasing employer securities unless the facts and circumstances would defeat or substantially impair the purposes of the trust. If trustees are also directors or officers of the employer, they must show that they acted impartially in investigating available investment alternatives - particularly if the employer is experiencing financial difficulty.

The court evaluated the reasonableness of the trustees' actions under the standard set by the U.S. Supreme Court, in the Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101 (1989) case. Reasonableness is judged by whether:

• the interpretation is consistent with the goals of the plan;
• it renders any plan language meaningless or internally inconsistent;
• it conflicts with the substantive or procedural requirements of ERISA law;
• the provision has been interpreted consistently; and
• the interpretation is contrary to the clear language of the plan.

Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995).