These include a workable relationship, cost related to value and the ability of the provider to cooperate with other providers, Margaret Raymond, vice president and managing counsel at T. Rowe Price, told PLANSPONSOR. However, there are specific questions plan sponsors should ask when evaluating a trustee.
According to Raymond, first they should ask whether they want to self-trustee or outsource that duty. Either individuals or a committee at the plan sponsor can serve as trustee. They should consult their own attorneys about whether it makes sense for the sponsor to try to fulfill those duties.If the decision is to outsource, do they want a discretionary or non-discretionary trustee?
A discretionary trustee has the exclusive authority and discretion over the management and control of plan assets and holds the fiduciary responsibility and liability for taking direction for the monitoring, selection and replacement of plan assets. A directed trustee acts on the direction of the plan sponsor or another appointed fiduciary. Raymond added that some trust companies blend directed with some aspect of discretion—such as voting shares for participants. Plan sponsors should understand governing documents and arrangements to understand what is directed.
In general, the trustee function is passive, and not many trustees actually manage the assets, according to Michael E. Goss, executive vice president at Fiduciary Investment Advisors. Trustees are basically in charge of accounting of asset movement, taking in assets, day-to-day reporting of dividends and cash flows in or out, payments of benefits out of the plan and issuing 1099s.
For this reason, Goss contended that to improve the plan sponsor-trustee relationship, it comes down to looking at the target market of the trustee and the service team model. For example, in large trustee firms the service team is able to handle complicated issues, and there is not as much hand-holding. “So, if you’re a $50 million plan for which the HR person is doing everything and is not a pension expert, you wouldn’t go to a big trustee,” he said. “On the other hand, if you’re the pension manager of a Fortune 500 company, you want a big trustee.”
As for the service team model, some trustees/custodians have a processing center, some have a relationship manager assigned to the client, and some have a team assigned to the client.According to Goss, the trustee should offer the ability to process requests so the plan sponsor does not have to do things manually. Trustees can add value with technology—does it have an online portal for processing benefits payments and generating reporting? Does it offer benefits calculations and portals for participants to research benefits?
Trustees should provide easy-to-read, timely reports. If the plan sponsor is audited by the Department of Labor (DOL) or Internal Revenue Service (IRS), it will need good, clean information. Goss added that plan sponsors should ask trustees how well they work with auditors; they should provide regulatory support and help sponsors stay in compliance.
When hiring a trustee, communication is a good starting place, said Mark Jones, director of sales and client service for Employee Benefit Solutions at SunTrust Bank. Plan sponsors should make sure everyone knows who is responsible for what and ensure that everyone has access to each party in transactions. Know what the trustee does and what it outsources, and its responsibility if it outsources a service.
The trustee should be able to reduce the potential for conflicts of interest, he added. For example, a conflict can arise in company stock situations if a trustee takes direction from plan sponsors that have inside information about the stock. Trustees should be able to make a decision independently in such a situation.
Jones suggested plan sponsors have a regular review of procedures with trustees and nail down details of procedures the plan document does not explicitly explain. “Sometimes there is room for interpretation for how to carry out the terms of the plan,” he pointed out. If procedures are not documented properly with the trustee, a move to a new trustee could result in unintentional changes.There are many levels of fiduciary responsibility, Jones said, and trustee is just one of them. “A lot of times, folks … mistake the role of a trustee for something broader than it really is. Trustee responsibilities are pretty specific,” he concluded.