The U.S. Court of Appeals for the 9th Circuit has significantly limited the liability of banks that serve as custodians of employee benefit plans.
The court said custodians are only responsible for distributing funds as directed by trustees of the benefit plan. They do not have a broader fiduciary responsibility to safeguard the fund from fraud, it ruled.
"This is good news," said Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association. "A bank serving as a custodian does not have federal fiduciary duties to the participants in a benefit plan."
The case involved Citibank and the Arizona State Carpenters Pension Trust Fund, which was defrauded by the plan's investment advisers.
The legal dispute is not over, however. The appeals court, in California, ordered a trial court judge to decide whether state law there imposes an additional responsibility on banks to safeguard benefit plans.
The decision was filed Sept. 8 but lawyers did not receive it in the mail until Monday.