Building a Successful Relationship with a Directed Trustee

Abstract

All plan fiduciaries should be aware of whether their plan trustee is a discretionary trustee or a directed trustee. Directed trustees are generally not liable for the actions they take pursuant to a fiduciary's direction. Trustees can only follow directions, however, if the directions are in accordance with the terms of the plan, prudent and not a prohibited transaction. The issue of whether a direction is prudent often arises in regard to plan investments in employer stock. Trustees have a duty to question directions if they have nonpublic information about the stock that impacts the direction and in certain situations where the company is in extreme financial distress. Even if a directed trustee gives compliance advice or investment input, the fiduciary is still the person with ultimate responsibility and liability. It is the fiduciary, not the directed trustee, who has the legal responsibility to use due diligence in all decisions