TPA conflict of interest for an ESOP

[Guest SPollock]

The employer is going to be the Trustee. We will hold the certificates for the ESOP as the Custodian. Is this a concerning? We are serving as Custodian because we want the business and the Custodial fees.

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[Guest SPollock]

We are working with a client on setting up a new Leveraged ESOP for their company. I work for a Bank and the TPA we are recommending is also the Bank's primary auditor. (It is important to note that they are also one of the best known providers of ESOPs in our area.) Our Bank will be serving as Custodian (not Trustee) and our bank will also be providing the financing for the leveraged ESOP. I have been told that as long as we serve only as Custodian, and the TPA is paid directly by the client, there is no conflict of interest concerns. Am I correct? Also, is there any problems with our bank serving as Custodian and financing the leveraged ESOP? Thank you!

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[RLL]

What is the role of the Custodian? To hold the stock certificate(s) for the shares purchased by the ESOP? To hold the ESOP shares pledged as collateral?

Why not just serve as lender and let the ESOP trustee(s) hold the ESOP's non-pledged assets?

[Kirk Maldonado]

Are you sure that the employer can be the trustee? I don't know about other states, but I know that a (regular) corporation in California cannot be a trustee. Also, I've never heard of a corporation, other than a bank (in any state), serving as the trustee of its plan.

[IRC401]

In response to Kirk, in PA a corporation is allowed to serve as trustee of its own plan. (Of course, it would not be charging trustee fees.) I don't know about other states.