Learn something new every day More Info... by email
An employee trust fund is a type of trust where employees of a given organization are listed as beneficiaries, receiving benefits like health care and pensions through the trust. The employer acts as the granter, paying into the trust fund to make funds available for employees. The trustee in charge of the fund usually has the ability to invest funds to help the fund grow, in addition to making payouts as necessary under the stipulations surrounding the trust.
Such trusts are one example of a benefits model an employer can use to provide employees with access to benefits. Government employees often use an employee trust fund that may pool contributions from multiple agencies to make the trust as large and stable as possible, but individuals working in the private sector may have access to similar funds through their workplaces. In a workplace where a trust is not present, employees may lobby for one and ask to have their benefits provided in this format.
A classic example of an employee trust fund is a fund to pay for health care services. Employees and immediate family receive assistance with health care costs through the trust. Depending on how it is organized, they may get regular payments, the fund may pay for insurance, or they may see designated health care providers who bill the trust. The trust determines whether to offer benefits in this case, and any unpaid bills go to the employee, including copays and deductibles.
Pension funds may also be administered through an employee trust fund. As the employer adds rolling contributions and the trustee invests them, the fund pays out to current retirees so they have money to live on. The fund provides a stable income to retirees, and usually people can get information from human resources about the amount of benefits to expect so they can plan effectively for retirement.
If an employee trust fund is mismanaged or the trustee fails to plan for significant financial events, this can create a serious problem. The fund may run out of money, leaving employees who thought they would get benefits in an uncomfortable position. With retirement benefits, this can be a particular problem, as employees may count on their retirement income. Delays or reductions in benefits can make retirees vulnerable to bankruptcy or significant economic hardships, like being unable to afford all necessary food, housing, and medical care. This can occur because of bad investments, an unprecedented number of payouts due to growing numbers of retirees, or deliberate trust fund fraud.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!