Question

Which of the following is/are possible consequence(s) for a bank that invests discretionary personal- trust- account assets in own-bank certificates of deposit with below-market interest rates? (Check all that apply)

a. A court may order the bank to reimburse the accounts for foregone interest because of the lower rate.
b. The bank may voluntarily restore the accounts for foregone interest to avoid the legal costs and reputational damage of defending its actions in court.
c. The Department of Labor could sue the bank for statutory damages under Section 406 of ERISA.
d. Personal trust accounts are prohibited by law from investing in own-bank deposits, therefore, the consequences, if any, would only apply to agency or custody accounts, which can purchase own-bank deposits.

Answer 1

A bank that invests personal-trust-account assets in its own certificates of deposit at below-market rates can be ordered to reimburse the accounts, might voluntarily restore interest to avoid costs and reputation damage, or could be sued by the Department of Labor under ERISA. The correct options are A, B, and C.

Step-by-step explanation:

The consequences for a bank that invests discretionary personal-trust-account assets in own-bank certificates of deposit with below-market interest rates could include:

• A court may order the bank to reimburse the accounts for foregone interest due to the lower rate.
• The bank may voluntarily restore the foregone interest to avoid legal costs and reputational damage.
• The Department of Labor could sue the bank for statutory damages under Section 406 of ERISA.

The fourth option is incorrect, as personal trust accounts can legally invest in own-bank deposits, but the bank must adhere to the fiduciary standards and act in the client's best interest.