Corporate Trustees

[Guest JEP]

I have a prospective plan that is hung up on a trustee issue. The current administrator is telling the client that they will absorb all liability for the plan and that the plan sponsor will incur no liability. We have told the client that a corporate trustee may harbor some liability, but as a plan sponsor, they are still responsible for the plan overall, which includes any liability that may arise. Does anyone have any cites, cases, etc. that could help us to prove our point to the client that regardless of who they appoint as a trustee, they will still retain some liability?

[Alan Simpson]

As I recall there was an article on this website regarding corporate trustees. I would use the SEARCH for CORPORATE TRUSTEE and see if you can find the article.

Also, just as common sense scenerio, if they have the ability to hire/fire a corporate trustee then they ultimately have some responsibility since they do have some control (although maybe not on a daily basis) over the plan and the assets.

[Guest Jennifer Reid]

Have the plan sponsor carefully read its plan document and trust document with regard to who is responsible for what. Normally, the plan sponsor is considered the "named fiduciary" regardless of whether the trustee is a discretionary or nondiscretionary trustee, and even "full service" trustees won't bear the responsibility for the operation of the plan. This sponsor should be very careful to read and understand the service contract with the administrator that claims to "bear all liability". In many cases, what is represented verbally is not what the parties are contractually bound by.

[QDROphile]

Plan sponsors that allow the sponsor to be a named fiduciary or that take on any fiduciary functions deserve all the liability they can get.

However, even a properly situated plan sponsor is likely to have indirect liability to the extent of agreements to indemnify fiduciaries.