LAST REVIEWED Sep 14 2022
9 MIN READ
Trustees are required
All 401(k) plans are required to have a plan trustee. The Trustee may be a professional trust company or bank, or one or more individuals appointed by the plan sponsor and who agree to assume the Trustee role. Company employees must serve as Trustees without compensation. Professional Trustees will charge a fee for their services.
How is a Trustee different from an Investment Fiduciary?
The federal law that governs 401(k) and other pension plans, called ERISA, sets out the duties of the plan fiduciaries, including those of the Trustee and Investment Fiduciary. The Trustee is generally responsible for managing and accounting for a plan’s assets. The Investment Fiduciary is responsible for selecting investments or appointing a professional investment manager, such as Human Interest Advisors, to select the menu of available investments.These two roles of Trustee and Investment Fiduciary may, but are not required to be, filled by the same person.
What are the Trustee’s duties?
The Trustee is generally responsible for managing and accounting for a plan’s assets but it may delegate some of these responsibilities to service providers, as long as it monitors the service provider to ensure it is performing the required services appropriately. ERISA permits the Trustee to be indemnified by the plan sponsor if the Trustee makes honest mistakes fulfilling its responsibilities.
Here is an overview of the duties a Trustee is responsible for:
| Duty | Trustee | Custodian Assists | Human Interest Assists |
|---|---|---|---|
| Holding and investing plan assets as directed by the appropriate plan fiduciary | Yes | Yes | Yes |
| Choosing plan investments | No | No | If Human Interest is 3(38) Investment Manager, we take full fiduciary responsibility If Human Interest is 3(21) Investment Advisor, we share fiduciary responsibility with Plan Sponsor |
| Accepting, determining, and collecting contributions | Yes | Yes | Yes |
| Authorizing distributions | Yes | No | Yes, if client is on Complete or Concierge level service |
| Providing an accounting of plan assets and valuing plan assets at least once a year | Yes | Yes | No |
| Avoiding certain related party and self-dealing transactions (called “prohibited transactions”) | Yes | No | Yes |
| Holding the promissory notes and security agreements signed by participants when they borrow from the plan and enforcing the security provisions if participants default on their loan repayments | Yes | Yes | Yes |
Description of plan trustee duties
It is important to understand the difference between being responsible for and performing the above tasks/duties.Although the custodian, Matrix Trust Company, and Human Interest perform these activities, the Trustee could still have liability to the extent the duties above are not fulfilled properly.
What are the Investment Fiduciary’s duties?
The Basic Plan Document requires the plan to name an Investment Fiduciary. If an Investment Fiduciary is not named, the Plan Sponsor is the Investment Fiduciary.
The Investment Fiduciary may appoint a “3(38) Investment Manager” as defined in ERISA to assume responsibility for selecting the plan’s fund line-up. If Human Interest is hired as a 3(38) Investment Manager, the fiduciary responsibility for investments is delegated to Human Interest.
As an alternative, the Investment Fiduciary may appoint a “3(21) Investment Advisor” as defined in ERISA to share the fiduciary responsibility for selecting the plan’s fund lineup. Both the 3(21) Investment Advisor and the Investment Fiduciary share the fiduciary responsibility in this case.
This overview is meant to be a user-friendly summary of very complicated legal rules. It is provided as a guide for plan sponsors and trustees. It is not intended to be, nor is it a substitute for legal advice from an attorney.
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