401(k) trustee

A 401(k) trustee holds a crucial position in the administration of a 401(k) plan and bears significant fiduciary duties. These duties involve managing plan assets prudently, ensuring compliance with the Employee Retirement Income Security Act (ERISA), and acting solely in the best interests of the plan participants. 

Trustees make vital decisions regarding investments, oversee asset allocation, and select service providers. Non-compliance with these responsibilities can result in personal liability and penalties for the trustee.

It’s important to note that these responsibilities differ greatly from those of a Plan Administrator.

Specific responsibilities of a trustee

A trustee’s specific duties encompass a range of critical tasks, including:

• Holding and investing plan assets: Trustees are responsible for holding and investing plan assets in a Trust or Custodial Fund. 

• Accepting, determining, and collecting contributions: Trustees agree to accept contributions that are paid to the plan. They may also verify that contributions are accurately calculated and collected in a timely manner.

• Authorizing distributions: Trustees agree to make distributions out of the Trust Fund that are authorized by the Plan Administrator.

• Providing an accounting of plan assets: Trustees perform trust fund accounting and provide a valuation of plan assets at least once a year.

• Avoiding prohibited transactions: Trustees must avoid certain related party and self-dealing transactions.

• Holding promissory notes and security agreements: When participants borrow from the plan, trustees hold the promissory notes and security agreements and enforce security provisions if participants default on their loan repayments. 

For more information on trustee responsibilities, please consult the Trust Agreement, which is part of your plan document. This document provides details regarding the role of the trustee in comparison to a Plan Administrator or other service provider.

Delegation of responsibilities

While trustees can delegate many tasks to service providers, they retain the ultimate responsibility for these duties and must monitor service providers to ensure proper performance. For example, custodians can handle asset management, contributions, and distributions, while other providers may manage recordkeeping and investment management.

Appointment of a 401(k) Trustee

Trustees are named in the plan document or a separate trust agreement.  Plan sponsors should carefully select a trustee who has the qualifications and expertise to effectively fulfill the role, including the requirement that the trustee. This thorough evaluation process ensures the appointed trustee is capable of handling the significant responsibilities associated with the role.

It's also important to know that if the trustee is an individual, they must be a US Citizen.

401(k) trustee vs. custodian

Trustees have a fiduciary responsibility and control over the management of the plan assets, whereas custodians primarily safeguard plan assets as directed by the trustee or investment manager. The custodian's role is to hold and portect the assets rather than make decisions about them.

Adhering to ERISA’s regulations

Trustees must adhere to ERISA’s stringent regulatory framework, ensuring the plan operates in compliance with all applicable laws and regulations. This compliance is crucial to maintaining the integrity of the plan and protecting the interests of the participants. Trustees should work in tandem with their service providers and qualified counsel to ensure proper plan administration.

Importance of a trustee in a defined contribution plan

Having a trustee is a legal requirement for 401(k) plans to ensure proper administration and protection of plan assets. The trustee’s role is fundamental to the operation and integrity of the plan.

A competent trustee ensures prudent management of the plan, compliance with regulatory requirements, and the safeguarding of participants' interests. This provides confidence to both plan participants and sponsors, knowing that the plan is managed effectively and responsibly.

For more information on essential roles in plan administration, see the four required players of plan administration.