[Code of Federal Regulations]
[Title 29, Volume 9]
[Revised as of July 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR2550.408b-4]

[Page 503-505]
 
                             TITLE 29--LABOR
 
CHAPTER XXV--PENSION AND WELFARE BENEFITS ADMINISTRATION, DEPARTMENT OF 
                                  LABOR
 
PART 2550--RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY--Table of Contents
 
Sec. 2550.408b-4  Statutory exemption for investments in deposits of banks or similar financial institutions.

    (a) In general. Section 408(b)(4) of the Employee Retirement Income 
Security Act of 1974 (the Act) exempts from the prohibitions of section 
406 of the Act the investment of all or a part of a plan's assets in 
deposits bearing a reasonable rate of interest in a bank or similar 
financial institution supervised by the United States or a State, even 
though such bank or similar financial insitution is a fiduciary or other 
party in interest with respect to the plan, if the conditions of either 
Sec. 2550.408b-4(b)(1) or Sec. 2550.408b-4(b)(2) are met. Section 
408(b)(4) provides an exemption

[[Page 504]]

from sections 406(b)(1) of the Act (relating to fiduciaries dealing with 
the assets of plans in their own interest or for their own account) and 
406(b)(2) of the Act (relating to fiduciaries in their individual or in 
any other capacity acting in any transaction involving the plan on 
behalf of a party (or representing a party) whose interests are adverse 
to the interests of the plan or the interests of its participants or 
beneficiaries), as well as section 406(a)(1), because section 408(b)(4) 
contemplates a bank or similar financial institution causing a plan for 
which it acts as a fiduciary to invest plan assets in its own deposits 
if the requirements of section 408(b)(4) are met. However, it does not 
provide an exemption from section 406(b)(3) of the Act (relating to 
fiduciaries receiving consideration for their own personal account from 
any party dealing with a plan in connection with a transaction involving 
the assets of the plan). The receipt of such consideration is a separate 
transaction not described in the statutory exemption. Section 408(b)(4) 
does not contain an exemption from other provisions of the Act, such as 
section 404, or other provisions of law which may impose requirements or 
restrictions relating to the transactions which are exempt under section 
408(b)(4) of the Act. See, for example, section 401 of the Internal 
Revenue Code of 1954 (Code). The provisions of section 408(b)(4) of the 
Act are further limited by section 408(d) of the Act (relating to 
transactions with owner-employees and related persons).
    (b)(1) Plan covering own employees. Such investment may be made if 
the plan is one which covers only the employees of the bank or similar 
financial institution, the employees of any of its affiliates, or the 
employees of both.
    (2) Other plans. Such investment may be made if the investment is 
expressly authorized by a provision of the plan or trust instrument or 
if the investment is expressly authorized (or made) by a fiduciary of 
the plan (other than the bank or similar financial institution or any of 
its affiliates) who has authority to make such investments, or to 
instruct the trustee or other fiduciary with respect to investments, and 
who has no interest in the transaction which may affect the exercise of 
such authorizing fiduciary's best judgment as a fiduciary so as to cause 
such authorization to consititute an act described in section 406(b) of 
the Act. Any authorization to make investments contained in a plan or 
trust instrument will satisfy the requirement of express authorization 
for investments made prior to November 1, 1977. Effective November 1, 
1977, in the case of a bank or similar financial institution that 
invests plan assets in deposits in itself or its affiliates under an 
authorization contained in a plan or trust instrument, such 
authorization must name such bank or similar financial institution and 
must state that such bank or similar financial institution may make 
investments in deposits which bear a reasonable rate of interest in 
itself (or in an affiliate).
    (3) Example. B, a bank, is the trustee of plan P's assets. The trust 
instruments give the trustees the right to invest plan assets in its 
discretion. B invests in the certificates of deposit of bank C, which is 
a fiduciary of the plan by virtue of performing certain custodial and 
administrative services. The authorization is sufficient for the plan to 
make such investment under section 408(b)(4). Further, such 
authorization would suffice to allow B to make investments in deposits 
in itself prior to November 1, 1977. However, subsequent to October 31, 
1977, B may not invest in deposits in itself, unless the plan or trust 
instrument specifically authorizes it to invest in deposits of B.
    (c) Definitions. (1) The term bank or similar financial institution 
includes a bank (as defined in section 581 of the Code), a domestic 
building and loan association (as defined in section 7701(a)(19) of the 
Code), and a credit union (as defined in section 101(6) of the Federal 
Credit Union Act).
    (2) A person is an affiliate of a bank or similar financial 
institution if such person and such bank or similar financial 
institution would be treated as members of the same controlled group of 
corporations or as members of two or more trades or businesses under 
common control within the meaning of section 414 (b) or (c) of the Code 
and the regulations thereunder.
    (3) The term deposits includes any account, temporary or otherwise, 
upon

[[Page 505]]

which a reasonable rate of interest is paid, including a certificate of 
deposit issued by a bank or similar financial institution.

[42 FR 32392, June 24, 1977; 42 FR 36823, July 18, 1977]