If You Cross-Trade Securities, Make Sure Not to Cross ERISA

Securities trading between two accounts controlled by the same employee benefits plan manager or fiduciary may benefit both plans and other clients, but still may be prohibited due to ERISA’s strict conflict of interest rules.

Section 406(b)(2) of the Employee Retirement Income Security Act of 1974 (“ERISA”) prohibits a fiduciary from 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 its participants or beneficiaries. Generally, under §406(b)(2), “cross-trades” where at least one of the accounts is an ERISA-covered account, will be prohibited. ...