what is the advantage of a directed trustee?

[K2retire]

I've run into several clients recently who want to name their record keeper as a directed trustee. In most cases the companies have insisted on using a separate trust agreement that was not approved to go with our document, requiring an IRS submission. I am at a loss to think of any advantage that the client might gain by going to the time and expense of making these modifications, although I suspect the clients think they are escaping liability by naming someone else as trustee. Am I missing something?

[MoJo]

I've run into several clients recently who want to name their record keeper as a directed trustee. In most cases the companies have insisted on using a separate trust agreement that was not approved to go with our document, requiring an IRS submission. I am at a loss to think of any advantage that the client might gain by going to the time and expense of making these modifications, although I suspect the clients think they are escaping liability by naming someone else as trustee. Am I missing something?

I think it is the perception of reducing liability - BUT, my experience is that most service provider trust companies have trust agreements and service agreements that so severely limit their liability that there may not be much, if any, "liability" benefit from using them (and when I worked for some of them, I wrote those agreements - and it is yet to be seen how enforceable some of those provision may be). That said, having another fiduciary (and YES, even a non-discretionary directed trustee is a "fiduciary" though many deny it - but that's another discussion) means the plan sponsor must be "prudent" in the selection, and "monitor" the other fiduciaries to the plan to ensure no breaches/no co-fiduciary liability.

One other benefit I can think of is some "formality" placed around the processes that an insitutional trustee has, that may not be observed by an individual. That may be a benefit (as most individual trustees really have no idea what it means to be a trustee (and in some cases - more than I'd like to admit - the named individual trustee is either a former employer or even a deceased individual, leaving the plan essentially trustee-less).