What’s a Direct Trustee?

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A direct fiduciary is someone who assists in the administration of a private retirement plan under the guidelines of the Employee Retirement Income Security Act (ERISA). The term direct trustee derives from the fact that the person is subject to the direction of an appointed trustee who has control over the assets of the pension fund. A fiduciary is a person who has a legal and ethical responsibility to act in the best interests of retirement plan participants in the management of their assets. The direct trustee is also a trustee, but is subject to the direction and authority of the appointed trustee and ERISA provisions.

ERISA is a United States federal statute enacted in 1974 as a response to serious problems with poorly funded and poorly managed private pension plans. While ERISA does not require employers to set up retirement plans, it does regulate retirement funds after they are set up. Some retirement plans require a trustee to act under the direction of a trustee who is not a trustee. The trustee must act under the direction of the trustee unless the directives conflict with the provisions of ERISA. All trustees are considered trustees under ERISA and their ultimate duty is to the retirement plan participants.

Regardless of the trustee’s authority, a direct trustee has a duty to review the retirement plan and request all necessary documents to ensure that the directives are correct under the plan. He also has a duty to ignore directives that he knows are incompatible or prohibited by the provisions of ERISA. The scope of a direct trustee is severely limited with respect to the purchase, sale or dealing of pension fund assets and generally has no duty to inquire about the prudence of these transactions. However, in circumstances where the direct trustee knows that ERISA prohibits transactions, or has personal, nonpublic knowledge of the state of the assets that the trustee does not have, he must bring this information to the attention of the trustee.

If the company’s financial statements have misrepresented the value of its assets, including overvalued shares, the direct trustee must alert the trustee. Under extraordinary circumstances, the trustee’s directions may be disregarded. These circumstances include an ongoing federal investigation into the pension fund for financial irregularities, impending bankruptcy, or insufficient assets in the fund to enable the pension to be paid. Although a direct fiduciary has limited responsibilities, he always has a fiduciary duty to act prudently and in the best interests of the pension plan participants.

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