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A directed trustee is someone who assists in the administration of a private pension plan under the guidelines of the Employee Retirement Income Security Act (ERISA). The term directed trustee derives from the fact that the person is subject to the direction of a named fiduciary that 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 the participants of the pension plan regarding management of its assets. The directed trustee is also a fiduciary, but is subject to the direction and authority of the named fiduciary and ERISA provisions.
ERISA is a US federal statute enacted in 1974 as a response to serious problems with poorly funded and mismanaged private pension plans. Although ERISA does not require employers to establish pension plans, it governs pension funds after they are established. Some pension plans call for a trustee who acts under the direction of a fiduciary who is not a trustee. The trustee must act under the fiduciary’s direction unless the directives are inconsistent with ERISA provisions. All trustees are themselves considered fiduciaries under ERISA, and their ultimate duty is to the participants in the pension plan.
Regardless of the fiduciary’s authority, a directed trustee has a duty to review the pension plan and request any necessary documents to ensure that directives are proper under the plan. She also has a duty to disregard directives that she knows are inconsistent with or prohibited by ERISA provisions. A directed trustee’s scope is severely limited regarding the buying, selling or trading of pension fund assets, and she generally does not have a duty to investigate the prudence of these transactions. However, in circumstances where the directed trustee knows that ERISA prohibits the transactions, or she has personal, non-public knowledge about the status of assets that the fiduciary does not, she must bring this information to the fiduciary’s attention.
If company financial statements have misrepresented the value of its assets, including overvalued stocks, the directed trustee must bring alert the fiduciary. In extraordinary circumstances, the fiduciary’s directions can be disregarded. These circumstances include ongoing federal investigation of the pension fund for financial irregularities, impending bankruptcy, or insufficient assets in the fund to allow for pension payments. Although a directed trustee has limited responsibilities, she always has a fiduciary duty to act prudently and for the best interests of the pension plan participants.
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