Trustee compensation question

[Guest FAQ]

A small closely-held company is implementing an ESOP and is in the process of appointing trustees. There will likely be three trustees - a non-management employee, an independent director from the Board, and an outside trustee.

Does anyone have thoughts on what would be considered "reasonable compensation" for an individual serving as an outside trustee? The trustee would not provide any services other than as trustee (e.g. no accounting, vote tabulation, etc.).

I appreciate any thoughts, as the "reasonableness" and "facts and circumstances" language of the §4975 prohibited transaction rules does not provide real-world guidance.

[Guest tmills]

My guess, not based on real world experience either, would be an hourly rate that bears a relationship to the trustee's expertise, education, etc., times the number of hours spent. I think the problem might be if the fees paid this trustee approach what the plan would pay for an outside institutional trustee. They could consider a cap on fees paid to him/her to avoid that issue (or get a real outside trustee.)

I'm curious about the non-management trustee. Is he/she going to be indemnified or covered under some E&O policy? If not, they are sticking their neck way out, and of course if something goes wrong they will claim the company forced them to stick their neck out. Of course gross negligence wouldn't be covered even if there was some policy covering them. Depending on the qualifications, etc. of the non-management person, it seems like a risky position to be put in.

[Guest FAQ]

tmills - thanks for the response. You raise some good points.

The non-management individual would be indemnified and covered by insurance. He/she would not be considered management, but would be one of the higher ranking (and better qualified) employees who is not on the board. There are under 50 employees, so the pool is not too deep.