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Who can be an ESOP Trustee?


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Can a Limited Liability Company that is not a bank or trust company be named as the trustee of an ESOP?

The ESOP Trustee for a client's ESOP has been an LLC that provides ESOP fiduciary and trustee services. Client is refinancing loan and being told by lender that the trustee technically should have been the individual owner/manager of the LLC in his individual capacity and not the LLC itself. I cannot figure out why.  Any thoughts?

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To be a qualified plan under IRC Section 401(a), the trust must be a valid trust under the law of the State where the trust has its situs.  It has always has been a concern that if the trust is an entity that does not have trust powers under local law you are at risk for blowing 401(a) status.

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3 hours ago, jpod said:

To be a qualified plan under IRC Section 401(a), the trust must be a valid trust under the law of the State where the trust has its situs.  It has always has been a concern that if the trust is an entity that does not have trust powers under local law you are at risk for blowing 401(a) status.

I agree completely - with one extension:  SOME states allow SOME entities that are plan sponsors to be "trustee" of their own plan assets.  IF you are in one of those states and the entity is of one of the types that can be a trustee of their own plan, the question remains as to whether or not it is a good idea for them to do so.

As far as being trustee of an ESOP invested in the securities of the trustee as an entity, I would think long and hard about it, get a nose-plug to avoid the aroma, and CONSULT WITH COMPETENT ESOP/ERISA COUNSEL FIRST.

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4 minutes ago, jpod said:

I thought it was evident from the stated facts that the trustee was not the employer.  Perhaps I assumed too much.

Upon re-reading, I think I agree with that conclusion - which then in my mind would be clearly wrong.  An entity cannot be a "trustee" of another's plan/assets unless it has "trust powers."  The only exception I am aware of is that I describe above - in that the sponsoring entity may (dependent on state law) serve in that capacity for it's own plan/assets.

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For one example of the kind of statute jpod and Mojo refer to, see section 106 of Pennsylvania's Banking Code of 1965 at page 14 in this linked-to .pdf.

http://www.legis.state.pa.us/WU01/LI/LI/US/PDF/1965/0/0356..PDF

With the exception MoJo describes, the statute makes it unlawful for a corporation to act as a fiduciary unless it is a licensed bank or trust company (or is a nonprofit corporation and administers trusts related to the corporation's charitable or similar tax-exempt purposes).

 

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Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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