Can a trust sponsor a 401(k)?

[KEM]

With the understanding that the entity sponsoring the plan is usually the employer, this question arose in connection with a transaction where we just found out the seller, and plan sponsor, is a trust.  Forgive me if there is an obvious answer, but wondering if, as a technical matter, a trust can be the plan sponsor of a 401(k) plan?  Thanks!

[MoJo]

Is the trust an employer?  Many "trusts" are in fact, employers, and can (and do) sponsor employee benefit plans....

[Peter Gulia]

Under ERISA § 3 [29 U.S.C. § 1002], an “employee benefit plan”, including a “pension plan”, is “established or maintained by an employer[,] or by an employee organization, or by both[.]”

It’s possible a trust is an employer.

Not every operating business is organized as a corporation, limited-liability company, partnership, or similar organization; some are organized as a trust.

[CuseFan]

What everyone else said, or maybe the employer whose employees participate is owned by the trust.

[Paul I]

An ESOP that owns 100% of the stock of the company is a good example.  This arrangement is increasing in popularity for S-corps.

[EBECatty]

Expanding on some of the responses above, there's an important distinction between a trust as an owner of a business entity vs. a trust as a business entity. 

Many kinds of trusts (estate planning vehicles, ESOP trusts, etc.) can own a business entity that is organized as a corporation, LLC, etc. In that case, the owner is a trust, but the operating business/employer is a corporation, LLC, etc.

Some states allow the business entity itself to be a type of trust (often called "business trusts" or something similar). In these instances, the operating business itself is organized as a trust (instead of a corporation, LLC, etc.) and is the employer. 

[MoJo]

17 minutes ago, EBECatty said:

Some states allow the business entity itself to be a type of trust (often called "business trusts" or something similar). In these instances, the operating business itself is organized as a trust (instead of a corporation, LLC, etc.) and is the employer. 

Absolutely agree - but keep in mind that a trust can be an employer without operating a business.  Charitable trusts, for example, may have a staff to operate the charitable endeavors of the trust.  As an employer, the trust itself may be authorized to provide benefits (suitable compensation) to those who handle the administration of the trust.  Often that is outsourced, but if the trust is big enough, it doesn't have to be.  Often what we call charitable foundation is actually a "trust."  For example, the Bill and Melinda Gates Foundation is a functionally a trust, and has employees (many of them actually)....

[EBECatty]

4 minutes ago, MoJo said:

Absolutely agree - but keep in mind that a trust can be an employer without operating a business.  Charitable trusts, for example, may have a staff to operate the charitable endeavors of the trust.  As an employer, the trust itself may be authorized to provide benefits (suitable compensation) to those who handle the administration of the trust.  Often that is outsourced, but if the trust is big enough, it doesn't have to be.  Often what we call charitable foundation is actually a "trust."  For example, the Bill and Melinda Gates Foundation is a functionally a trust, and has employees (many of them actually)....

Agreed. My overly simplistic response was simply to make sure we're drawing the right distinction between a trust as a business owner vs. a trust as business/employer/foundation on its own. 

[MoJo]

1 minute ago, EBECatty said:

Agreed. My overly simplistic response was simply to make sure we're drawing the right distinction between a trust as a business owner vs. a trust as business/employer/foundation on its own. 

Most certain - that distinction is important.  Many trusts own businesses - and operate them - and the "employer" is typically the operating business, not the trust.

[QDROphile]

3 hours ago, Paul I said:

An ESOP that owns 100% of the stock of the company is a good example.  This arrangement is increasing in popularity for S-corps.

I think in most of those arrangements the company is still the employer and sponsor.

[Paul I]

You are correct.  This was an example for CuseFan's comment where "maybe the employer whose employees participate is owned by the trust." 

[joel]

A long time ago a major bank in NYC was named:  Bankers' Trust Co.

[KEM]

Thanks all!