From: Benefits

401(k) Plans – Compliance Solutions: Trust Account Requirements

Plans that are not set up through insurance contracts are required to hold plan assets in trust to ensure the assets are used solely to benefit plan participants and their beneficiaries. The trust is a separate legal entity and segregates assets of the 401(k) plan from other accounts. Either the plan document or a separate trust agreement must include specific provisions of the trust and must designate the trustee(s).

At least one trustee must be appointed to handle contributions, plan investments, and distributions. Appointed trustees may be an individual, such as an employee of the plan sponsor, a bank, or a trust company.

Trustee powers are generally delegated in a trust agreement. The trustee will either have the authority to direct the investment of plan assets or the trustee will be directed in how to manage the plan’s assets by the named fiduciary. The named fiduciary may also choose to appoint one or more investment managers for the plan’s assets. In such cases, the trustee executes the investment manager’s instructions when investing plan assets.

The trustee plays a significant role in ensuring the financial integrity of the plan. As a fiduciary, the trustee owes a duty of care and trust to the plan and must act primarily for the benefit of the plan. Therefore, an employer should exercise due diligence in selecting a trustee and ensure the trustee is meeting all fiduciary obligations.