Charlie is in the annual 401(k) plan review meeting and his boss recommends that he be named a trustee of the company 401(k) plan. Charlie has been handling much of the day-to-day processing for the plan, so getting a title to go along with his role seems like a good thing. Since he doesn’t fully understand what may be involved in being a Plan Trustee, Charlie calls his plan’s administrator here at Benefit Resources to fully understand what the role of Trustee really means. Here’s what he found out:

What is a Trustee? And what's their role in a qualified plan?

The Trustee is responsible for the investments held by the plan, and for acting solely in the best interest of the plan’s participants. The trustees’ names are included on the registration of the plan accounts. Some specific responsibilities of the Trustee include:

• Contributions – accepting contributions into the plan
• Distributions – authorizing the amount, timing and/or method of payment to participants or beneficiaries of the plan
• Records – maintaining full and accurate records of investments, disbursements, and other transactions
• Accounting – Trust fund accounting to be used in the plan’s annual filings
• Eligibility – determining employee eligibility into the plan
• Agent of service – the Trustee will often be served with notices of any action or claim against the plan.

Is a Trustee always a fiduciary to the plan?

Since a Trustee has the ability to exercise discretionary authority over the management or disposition of the plan’s assets and may also have responsibility for the plan’s administration, then YES, most often a Trustee is a fiduciary to the plan.

Additional Fiduciary Duties:

Fiduciaries are required to act in a prudent fashion with respect to the investments held in the plan. They should periodically review the plan’s investments for suitability, and understand what services are being provided for fees paid by the plan and the plan’s investments. The fiduciary should understand basic investment concepts of diversification, liquidity, and risk/return characteristics.

Who decides whom is to be named Trustee of the plan?

The Trustee of a plan serves at the pleasure of the Plan Sponsor, and can be removed at any time with a plan amendment.

Are Trustees always individuals?

No. Banks or insurance companies can serve as Trustees of a qualified plan. In many cases, however, institutions will act only as a “directed” trustee. This means that they will require instructions from the Plan Sponsor before they take any action in performing their duties. In some circumstances the corporate Trustee may take on additional responsibility and act as a “discretionary” Trustee.

Do all plans have to have a Trustee? Yes, almost all plans must have a Trustee. There are a few exceptions of annuity plans funded solely by contracts issued by an insurance company that may be exempt from the requirement.

Can anyone serve as a plan fiduciary?

No. A person who has been convicted of robbery, bribery, extortion, fraud or a number of other crimes is barred from serving as a trustee for 13 years after the conviction or the end of imprisonment (whichever is later). The fine for acting as a plan fiduciary in violation of this rule is subject to a maximum fine of $10,000, or 5 years in prison or both.

Is there insurance to protect Trustees in performing their fiduciary duties?

Yes. There are Fiduciary Insurance policies available. Contact your property and casualty insurance agent to inquire about coverage and premiums.

SUMMARY

So if you were Charlie, would you sign on as a plan Trustee? It is an important decision to weigh before taking on the role. The Internal Revenue Service has an article on their website called Retirement Plan Fiduciary Responsibilities that has a lot of good information. The administrators and consultants at Benefit Resources take pride in helping plan Trustees and fiduciaries meet their responsibilities every day. If you are concerned that you need more help in meeting your plan’s responsibilities, contact us to get a quote on our TPA services. Having us as your TPA is like having a security blanket.

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