The trustee is responsible for the safekeeping of a plan’s investments and needless to say – it’s a critically important role. While operating in good faith is a baseline duty expected of all trustees, not all trustees understand what they can be liable for or the true extent of their respective duties.
What can a trustee be liable for?
A trustee can be liable for their mistakes, depending on the terms of the trust. For example, neglecting to file income tax returns, missing opportunities to sell or to take other actions and precautions concerning assets held by the trust, failing to keep proper insurance on real estate, and so on can all result in liability for the trustee for the gross neglect of duties. Trustees must always remain objective concerning the interests of trust beneficiaries and comply with all provisions of the trust document while serving under the heightened standard of care.
Trust accounts are to be given annually to qualified beneficiaries, showing beginning and ending balances and what was received and paid out. Technically, trust accounts should also show book values and some market values. But these formalities are often overlooked in favor of reporting of basic financial activity. Providing tax returns and account statements is often deemed sufficient accounting, but local practice should be consulted.
Trustees typically use service organizations — such as bank trust departments, data processing service bureaus, insurance companies or other benefits administrators — in some capacity to assist in plan administration: They may outsource investment processing, recordkeeping and/or benefit payments, or claims processing as a way to reduce costs or increase efficiencies in administering employee benefit plans. You should be aware that the hiring of a service organization to perform any or all of the duties noted above is a fiduciary function. In addition, as part of your fiduciary responsibilities, you are required to periodically monitor the service organization to ensure it is properly performing the agreed-upon services. In its publication Meeting Your Fiduciary Responsibilities, the DOL points out that one way fiduciaries can demonstrate they have carried out their responsibilities properly is to document the processes used. Remember documentation is your friend! There is truly no such thing as being too organized, keeping too many records, or being too diligent when it comes to documenting financially sensitive or relevant information.
Each employee benefit plan is unique and requires specific monitoring, recordkeeping, and reporting. Given the complexity of this responsibility, it’s obvious that a trustee is going to need legal and accounting advice to make suitable decisions, properly document transactions, account for funds coming in and funds going out of the trust, and properly file tax returns. If you have questions or concerns, please do not hesitate to contact our dedicated team of RBT professionals today.
Source: AICPA