Loan Trust?

[Scott]

I'm not all that familiar with 401(k) plans funded by group annuity contracts. A client has such a plan, which is a prototype plan sponsored by the insurance company that issued the contract. The insurance company insists that the client appoint a "trustee" for a "loan trust." A few questions:

1. Why is a loan trust necessary? I thought that the purpose of the group annuity contract was to fund the plan, so why is a separate trust for loans necessary?

2. What would the typical role of a loan trustee be, and what type of fiduciary liability exposure would the trustee be taking on? Would it make sense for an officer of the company to take on this role, or would the company be better off appointing an institutional trustee?

[mbozek]

Some ins co lawyers believe that that a trust is required because approving a loan is a fiduciary function which requires an independent trustee. The only role of the trustee is to approve the loans since the insurer will not act as a fiduciary. The loan trust is is merely a couduit for the loan [payments which are transferred to the annuity contract. I have never understood the need for this legal fiction.