Certified Plan Sponsor Professional (CPSP) Practice Exam

Is it permissible under ERISA to select a bank as a service provider in return for a reduced rate on the corporate line of credit?

1. Yes, it is permissible

2. No, it is not permissible

3. Depends on the agreement terms

4. Only if the bank is the best option

The correct answer is: No, it is not permissible

Under the Employee Retirement Income Security Act (ERISA), certain fiduciary responsibilities are imposed on plan sponsors regarding how they select service providers and manage plan assets. The primary concern is whether the selection of a service provider, such as a bank, is made in the best interests of the plan participants and beneficiaries, and whether it adheres to the exclusive purpose rule, which mandates that retirement plan assets should be used solely to benefit the participants and their beneficiaries. In this scenario, selecting a bank as a service provider solely based on a reduced rate on a corporate line of credit raises significant concerns about fiduciary duty. If the decision to select the bank is not based on a thorough evaluation of the service the bank can provide for the retirement plan and is instead motivated by the financial benefit to the corporation, this could be seen as a conflict of interest and not in the best interests of the plan participants. Therefore, without a clear demonstration that the selection is made based on a comprehensive analysis of the service, fees, and other potential providers, this arrangement is not permissible under ERISA. Such a situation could easily lead to questions regarding the loyalty and prudential obligations that plan fiduciaries owe to the plan participants, which is why the answer points to a prohibition in