Employer as Trustee?

[7806akp]

Can the employer be the trustee of a 401(k) plan? I have seen it where an employee of the company is the trustee, but can the company itself be named as trustee?

[Bill Presson]

Can the employer be the trustee of a 401(k) plan? I have seen it where an employee of the company is the trustee, but can the company itself be named as trustee?

It's very rare, but it is possible. When i worked in Kentucky, we had a large medical practice as a client where all the individual owners served jointly as trustees. It was an issue replacing them as the various doctors joined and left the practice. They applied for and got approval to have the practice be the official named trustee. I believe they worked with the Department of Financial Institutions in the state capitol to get it worked out.

[Peter Gulia]

Some States’ laws do not preclude a corporation or other non-natural person from serving as a trustee.

Or if a State’s law precludes a non-natural person other than a bank or trust company from engaging in a BUSINESS of serving as a trustee, an employer’s service without compensation only for a single-employer plan for the employer’s employees might not be such a proscribed business.

Even if a State’s law generally prohibits a corporation that’s not a bank or trust company from engaging in a business of serving as a trustee or other fiduciary, a State’s law might permit a corporation to serve as the trustee of a trust for an employee-benefit plan for the corporation’s employees. To pick just one example, Pennsylvania’s Banking Code expressly permits a non-bank corporation to act as trustee of a trust “for the benefit of [the corporation’s] own employe[e]s[.]” 7 Pa. Stat. § 106(a)(iii).

[austin3515]

It seems to me if the corp is the trustee, then by the transitive property the owners are trustees. I get that it is less paperwork, but I do not see it reducing anyone's personal liability.

[Peter Gulia]

Even if appointing as a retirement plan's trustee the plan-sponsor corporation or other business organization (rather than the organization's officer, manager, or employee) does not practically change an acting individual's exposures to personal liability, some plan sponsors prefer to name the organization as the trustee so the liability in the first instance is on the organization, even if an individual also will be exposed to liability (especially if the organization is unable to pay). And some just like the symbolic value of naming the plan sponsor as its plan's trustee.

For the many retirement-services providers that seek to avoid too much advice about what a plan's sponsor should do, it's useful to know that a customer's question about whether the plan-sponsor organization may serve as the plan's trustee is not necessarily an idle or useless question.

Most small-business customers don't ask this question. But when one does, it can be useful to consider that the answer need not be a too-quick or too-simple No.

That said, we recognize that these complexities can be challenging for a TPA, recordkeeper, or other service provider.

[austin3515]

Well, I would be surprised that if this was an option I have never seen a pre-approved document include an option to set the Employer as the Trustee in the way they do for the Plan Administrator.

[Peter Gulia]

You're right that many (likely most) pre-approved document sets don't display a check-off box or other means for illustrating the idea that an adopter might name the Plan Sponsor or Employer organization as a plan's trustee.

But the fact that a pre-approved document's maker or sponsor chose not to display something doesn't necessarily mean that what's not readily suggested on that form is not a choice.

If the question is "Can the employer be the trustee of a 401(k) plan?", perhaps a lawyer's answer might be "it depends on relevant Federal and State laws; how much research do you want to pay for?"; and a practical answer (sometimes from a lawyer too) might turn on how much effort makes sense in the situation. That might be little to no effort if the questioner or her advisor finds that the potential consequences are modest or unlikely to be meaningfully affected.