What is the difference between a discretionary and a directed trustee?
If the plan document explicitly states the trustee(s) is subject to the direction of a named fiduciary (who is not a trustee) this trustee is named a directed trustee. This type of trustee operates under direction from the named fiduciary and under the rules of ERISA, in addition to the plan terms. A directed trustee has fiduciary responsibility and liability for taking direction for the monitoring, selection and replacement of plan assets from the named fiduciary. Finally, a directed trustee has fiduciary prudence for monitoring the timing of deposits, transactions activity and accuracy along with following DOL and IRS regulations.
By contrast, a discretionary trustee has the exclusive authority and discretion over the management and control of plan assets. This form of trustee personally holds the fiduciary responsibility and liability for taking direction for the monitoring, selection and replacement of plan assets.
Under ERISA (Employee Retirement Income Security Act), all assets of an employee benefits plan must be held in a trust by the trustee(s), no matter the type.
Please contact your Nyhart consultant if you have more questions about trustee responsibility.
This article was last updated on March 19, 2012