Appointment of Trustee

[Susan S.]

A 401(k) plan has 2 trustees, the executive director of the corporation and one other employee. I'll call the director John and the other trustee Sally. It is a non-profit corporation with a large board of directors, none of whom are employees or trustees.

John resigned and they have a new director, Jane. I sent an amendment to appoint Jane as trustee, with a signature line for Sally to execute the amendment as existing trustee. I also sent appointment of trustee/resignation of trustee forms. No big deal, I thought, but could not have been more wrong.

Jane does not want Sally, who works under her, to have any part of signing off on her appointment. To get around Sally having to sign, they asked if the change could be done as a board resolution instead of an amendment. I told them that would be fine. I'm not sure if that's right but I didn't see any other way around the ego trip. Now they are pushing it even further. Jane has a statement from the board that as director she can act on all matters on behalf of the employer. Given that, she is asking if she can appoint herself as trustee. Does the change have to be approved by the other trustee or the board of directors? She says if she can send a letter to John to remove him she should be able to appoint herself. She kind of has a point there, but surely there have to be some checks and balances.

[Kevin C]

You should take another look at the plan's provisions regarding amendments. I've never seen a document that allowed the Trustee to amend the plan. The same person may represent the Employer and also be Trustee, but they will be wearing their Employer hat when they sign the amendment.

Typically, a Trustee can resign, or may be removed by the Employer. The details will be in the plan document.

[QDROphile]

I agree that a close look at the documents is required. Respectable documents will describe transitio of individual fiduciaries and the scope of their powers and responsibilities.

This organization also needs some general advice about the corporate and fiduciary relationships. Jane's head does not seem to be in the right place in terms of the appropriate roles, functions, and responsibilities.

[Susan S.]

Thank you for pointing out that it is the employer who has the authority to amend the plan document. It seems to me that the person signing as representative of the employer should not be the same person as the individual being appointed as trustee, wouldn't you agree?

[Bird]

It seems to me that the person signing as representative of the employer should not be the same person as the individual being appointed as trustee, wouldn't you agree?

Not necessarily, at least in general. If Jane bought a company from John, I'd expect her to be able to execute any and all documents for the new company. As far as whether that "should" be allowed for a non-profit, I imagine that's how they get in trouble.

You may also want to look ahead and see what the financial institution wants for proof of the change, if you are involved in that end of things. They might want a guaranteed signature at the very least, and all kinds nonsensical stuff at worst.

[GMK]

I agree with what's already been said and would add that I would be surprised if trustee Sally has the authority (in the role of trustee) to appoint other trustees. The Plan Document will specify who appoints the trustees.

I'm used to seeing that the Employer appoints the trustees. That says to me that the Board votes on it, but maybe Jane can decide on her own (as Bird says), depending on how much authority she has.

A Plan Doc may include wording to the effect that if the Employer does not appoint someone within so many days, then the highest ranking officer of the Employer becomes the successor trustee. I don't know if this is typical of all plan docs.

I think the person being appointed as trustee can sign for the company, as long as the appointment of the trustee is consistent with the Plan Doc. Two different hats, if you will. The important and sometimes tricky part is when the trustee puts on the fiduciary hat and makes decisions for the Plan, solely for the benefit of the Plan and without regard for the company.

[My 2 cents]

Sally may want to think long and hard about remaining a trustee under these circumstances. Or at least think hard about it (if not long). If she and Jane are the trustees, with Sally reporting to Jane, that is not a very healthy place to be. Would Sally, in her capacity as trustee, be able to go toe to toe with Jane about a proposed action with which she disagrees? Is there confidence that Jane will exercise her duties as trustee in a diligent and prudent manner? Sally could become subject to personal liability for fiduciary violations committed by Jane.

Not to mention that you do not make it sound as though reporting to Jane (even as an employee) will be a walk in the park!

[GMK]

Sure, we all love Sally and think that Jane is a d**k. But that happens all the time in the real world. You just have to do your fiduciary duties and stand up for what's right for the Plan when you're wearing the trustee hat.

What both need to focus on first is finding an advisor who understands the Plan way more better than this:

I sent an amendment to appoint Jane as trustee, with a signature line for Sally to execute the amendment as existing trustee.

[My 2 cents]

Maybe what they meant was that they sent the amendment along, to be properly signed. Amendments affecting the trustees must be ratified by the trustees.

But don't most plans already contain provisions dealing with replacing trustees, making a separate amendment unnecessary?

When it happens in the real world, it tends to not go so well for Sally! If Jane says A and Sally says B, when do the "B"s" prevail?

[K2retire]

Some record keepers require the signature of a trustee on everything even though that is not legally correct.

[GMK]

Amendments affecting the trustees must be ratified by the trustees.

Just curious, is this by law or per plan provisions?

[My 2 cents]

I am not a lawyer, but I have seen the following sentence appear in some plan documents in the section concerning plan amendments: "However, any amendment which affects the rights, duties or responsibilities of the Trustee (or Insurer) or Administrator may only be made with the Trustee's (or Insurer's) or Administrator's written consent."

[GMK]

Agreed that amendments affecting rights, duties, or responsibilities are usually signed by a representative of the Employer and by the appropriate representative(s) of the Plan, but I haven't seen this applied to the appointment of trustees ... but maybe it does sometimes. Another of the many reasons to read the Plan Doc.