Most plan sponsors seek to have a retirement plan that provides adequate benefits to their employees, is easy to administer, is compliant with ERISA fiduciary standards and protects the plan sponsor from legal and financial risk and liability. Working in conjunction with a knowledgeable retirement plan advisor, a discretionary corporate trustee is uniquely suited to allow the plan sponsor to meet these goals.

1. Unified Trust Company, N.A.
How to Prudently Hire and Retain a Discretionary
Corporate Trustee: Guidelines for Advisors and
Plan Sponsors
Hiring a Discretionary
Corporate Trustee to Improve
Outcomes and Manage Risk
Most plan sponsors seek to have a
retirement plan that provides adequate
benefits to their employees, is easy to
administer, is compliant with ERISA
fiduciary standards and protects the plan
sponsor from legal and financial risk and
liability. Working in conjunction with a
knowledgeable retirement plan advisor,
a discretionary corporate trustee is
uniquely suited to allow the plan sponsor
to meet these goals.
Charles Schwab in conjunction with Koski Research, 401(k)
Participant Survey, October 2011
1
National Association of Plan Advisers, NAPA Net,
December 21, 2012
2
Plan Sponsor, “Vanguard Is Offering Retirement Plan
Participants Interactive Graphics to Help Them Make Key
Decisions”, July 10, 2013
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ERISA Section 403 (a)
We now have more than 20 years
experience that clearly shows that
401(k) education has made very little
difference in improved outcomes. In
fact, a 2011 study showed that 56% of
plan participants were not aware of or
did not review plan related education
materials.1 This despite more than $1
billion the industry spends each year on
employee 401(k) education.2 A recent
Vanguard study showed that only one
in four participants bothered to open
an email that contained a personalized
forecast and an offer for advice.3 Overall
less than 2% of plan participants signed
up for advice according to Vanguard.
What we have learned is that in order
to improve outcomes, discretionary
activities with resulting control over
numerous plan activities are required.
Unified Trust Company, N.A. has
served for many years as a discretionary
corporate trustee of ERISA plans. Unlike
ordinary providers of investment products
such as directed trustees, Unified Trust is
a “named fiduciary” in the plan document.
The role of a discretionary corporate
trustee generally encompasses exclusive
responsibility for the assets of the plan,
including the selection and monitoring of
investments, proper allocation of assets,
avoidance of prohibited transactions,
and proper plan administration. The
discretionary corporate trustee must be
prudently hired, and as ERISA states,
“shall have exclusive authority and
discretion to manage and control the
assets of the plan.” 4

2. A named fiduciary is the single most important
fiduciary in administering the plan.5
The Department of Labor (DOL) has stated that
the act of appointing such fiduciaries is in itself a
fiduciary function.6 Generally, an employer’s board
of directors, business owner, or decision-makers
will designate the named fiduciary, either pursuant
to procedures set forth in the plan documents or by
approving a plan document that already designates
the named fiduciary. In such circumstances, this
decision maker is a fiduciary to the plan with respect
to the appointment process. Because designating the
named fiduciary is a fiduciary function, the board
of directors or other person or entity appointing the
named fiduciary should exercise prudence in the
selection process. A knowledgeable retirement plan
advisor can be of immense help to the plan sponsor
in selecting the named fiduciary.
There are two types of corporate trustees—those
that are discretionary and those that are directed
(also called passive or custodial). The discretionary
corporate trustee’s responsibilities are far more extensive that the responsibilities of an ordinary directed trustee. A directed trustee has no discretionary
authority with respect to the investments of assets,
selection of providers, distribution of assets, or plan
administration. For example, a directed trustee is
only responsible for custody and safekeeping of the
plan’s assets; implementing directions from the plan
sponsor’s retirement committee and basic trust accounting. As a practical matter, the directed trustee
functions mostly in the role of a passive custodian.
Although it is confusing to many plan sponsors, they
or their retirement committee are always in charge
and have the responsibility for management of a
directed trustee, even if the directed trustee is a large
financial institution.
Congress passed ERISA in 1974 to provide safeguards and standards for the operation and management of retirement plans in the nation’s private
sector. ERISA §403(a) clearly specified who would
have the exclusive power and authority to manage
plan assets. This power and authority was placed
primarily on a discretionary plan trustee who would
be hired by the plan sponsor. Despite ERISA’s
clear preference that there be a discretionary trustee
with the exclusive oversight over plan assets, most
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investment providers refuse to accept appointment
as a discretionary trustee. These investment providers simply do not want to take on the fiduciary
obligations of a discretionary trustee. Over time the
industry largely moved to a directed trustee structure
because it allowed service providers to keep conflicts
of interest and have resultant higher profit margins.
In the Renfro v. Unisys Corp ERISA litigation, the
minimal role of the directed trustee, in this case
Fidelity Investments Trust Company, was very clear.7
According to the court: “Fidelity’s limited role as a
directed trustee, delineated in the trust agreement,
does not encompass the activities alleged as a breach
of fiduciary duty—the selection and maintenance
of the investment options included in the plan. As
we have explained, a directed trustee is essentially
‘immune from judicial inquiry’ because it lacks
discretion, taking instructions from the plan that it is
required to follow.” It is hard to be any clearer than
the words “immune from judicial inquiry.” The directed trustee is simply not responsible, and therefore
any problems belong to the plan sponsor and their
retirement committee if they have one.
A true ERISA §403(a) discretionary corporate trustee
provides the highest level of fiduciary protection to
the plan sponsor.
This is because the duties accepted by the discretionary corporate trustee are more encompassing than any
other fiduciary such as the so-called 3(38), 3(21) or
3(16) delegated advisors or managers. This is true
even if the delegated fiduciary is serving in a discretionary role.8
Serota, S and Brodie, F, ERISA Fiduciary Law, Second Edition, pp 191193, © 2006 BNA Books
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6
Renfro v. Unisys Corp., 671 F. 3d 314 - Court of Appeals, 3rd Circuit
2011
Grantz, J. and Sanford M., Deconstructing the Discretionary Fiduciary
Models: ERISA Section 3(38) Investment Managers vs. Discretionary
Trustees, Journal of Pension Benefits, pp 30-37, Winter 2011
8
9
DOL Field Assistance Bulletin 2007-1
See Martin v Tower settled 1991, Whitfield v. Cohen, 682 F.Supp. 188,
193 (S.D.N.Y. 1988); Arizona State Carpenters Pension Trust Fund, D.
Ariz., No. CIV 89-0693 PHX RGS, settlement 1/2/94; Chao v. Legino, D.
Ore., No. 02-440, settlement 4/4/02.
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2
29 CFR 2509.75-8, D-4
7
DOL Advisory Letter 97-15

3. Allocated versus Delegated
Fiduciary Duties
It is important to understand the difference
between allocated and delegated fiduciary
duties.
• whether the consultant has fiduciary
liability or other insurance that would
protect the plan and its fiduciaries;
• ERISA bonding amount;
• ERISA fiduciary liability insurance
amount;
• securities law registration (or similar
licensing);
• references from other plans for whom
the consultant has provided investment
services;
• Acknowledgement in writing by the
investment consultant that it is an
ERISA fiduciary;
A discretionary corporate trustee performs
allocated duties, while a 3(38) or 3(21)
manager performs duties delegated
to them by a named fiduciary, such as
the plan sponsor or even an allocated
discretionary corporate trustee.
• “Allocation” is the term for division
of responsibilities amongst named
fiduciaries (generally done in the plan
document); while
• “Delegation” occurs when a named
fiduciary delegates some of their plan
responsibilities to another fiduciary
(who is not a named fiduciary in the
plan document);
• Both allocation and delegation should
be done in writing and in accordance
with ERISA, DOL regulations, and the
plan document.
Hiring a Discretionary
or managers. In addition, because the
discretionary corporate trustee has greater
responsibility, any ERISA fiduciary
violations would far more likely fall on
its shoulders when compared to other
more limited fiduciary service providers.
In almost all court cases limited
service providers such as mutual fund
complexes and insurance companies have
disavowed any fiduciary status. Thus, the
discretionary corporate trustee provides
much greater protection to the plan
sponsor.
In contrast the due diligence a plan
sponsor must undertake in hiring and
retaining a non-trustee investment
manager, such as a 3(38) investment
manager, can be overwhelming.9,10
In Martin v Tower, the court listed the
following review items the plan sponsor
Corporate Trustee is Easier
should consider before hiring a non-
than Selecting Other More
trustee investment manager:
Limited Plan Fiduciaries
Because the plan sponsor is normally
the ERISA fiduciary that selects and
monitors the discretionary corporate
trustee this task is a fiduciary function.
But the task is much more straightforward
than hiring other plan fiduciaries such as
3(38), 3(21) or 3(16) delegated advisors
• education;
• experience in advising plans;
• professional designations;
• capitalization and financial condition;
• A description of the investment process
used by the consultant, such as the
providers of the databases and software
used to formulate the advice;
• whether and how often written reports
are provided to the fiduciaries;
• whether the processes and advice are
based on generally accepted investment
theories, including modern portfolio
theory, and prevailing investment
industry practices;
• fee benchmarking;
• whether the consultant’s advice is
potentially conflicted;
• does the consultant’s compensation (or
other payments) vary depending on the
advice given;
• does any affiliated entity or person
receive payments that varies based on
the advice given;
• if the payments are variable, are those
payments offset against consulting fees
and equalized under the DOL “Frost
Model”11 ;
• the number of ERISA plans advised by
the consultant and the amount of assets
in ERISA plans for which the consultant
provides investment services; and
• procedures for avoiding ERISA
prohibited transactions.
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4. In addition, on a quarterly and annual basis the
plan sponsor must verify that the manager has
complied with all procedures and policies. The plan
sponsor should receive written certification from the
investment manager that there have been no ERISA
violations or prohibited transactions. Further,
the plan sponsor must ensure all assets have been
properly valued, conduct investment performance
versus benchmarks analysis; broken down by asset
class and sector and verify each manager’s fee
computation.
In contrast to a delegated investment manager the
discretionary corporate trustee is a named fiduciary
in the plan document and by ERISA definition is a
full-fledged fiduciary. The discretionary corporate
trustee’s duties and responsibilities cannot be
diminished or lessened by the terms of a contract,
because under ERISA it has exclusive discretionary
control and decision making authority. The
discretionary corporate plan trustee experienced in
ERISA will always have in place procedures and
processes to detect and make sure that no ERISA
violations take place. Further, the discretionary
corporate trustee is always subject to the Frost
Model of revenue neutrality, thus, conflicts of
interest and alternative sources of payment would
not be an issue. The experienced discretionary
corporate trustee is better qualified and inclined to
conform to the ERISA duty of loyalty to the plan
participants and the “prudent expert” duty.
In terms of its initial hiring the discretionary
corporate trustee will provide a comprehensive
package of information that covers essential due
diligence items needed for the prudent hiring of the
discretionary corporate trustee. This makes it very
easy for the plan sponsor to fulfill their fiduciary
duty to prudently hire.
Each year the discretionary corporate trustee can
provide appropriate reports, summarized data and
information to allow the plan sponsor to prudently
determine whether to continue the discretionary
corporate trustee for ongoing services. This makes
it much easier for plan sponsors to completely fulfill
their fiduciary duty in a time efficient manner. This
can make a material reduction in the plan sponsor’s
“soft costs” of internal personnel devoting large
amounts of company time and resources to prudently
overseeing the plan.
When hiring and retaining a discretionary corporate
trustee the plan sponsor and its board of directors
need only gather the following:
• a comprehensive package of information that
covers essential discretionary trustee due diligence;
• written certification from the trustee that they will
follow the Frost Model of revenue neutrality; and
• written certification from the trustee that it has
procedures and practices in place to avoid ERISA
violations and prohibited transactions
Summary
In summary, a discretionary corporate trustee
experienced in ERISA provides a much more
comprehensive fiduciary service to plan sponsors.
Not only does it accept fiduciary status and
responsibility, it provides the highest level of
fiduciary oversight required of a named fiduciary.
In conjunction with a discretionary corporate trustee
a knowledgeable retirement plan advisor is able to
bring much greater value to the plan sponsor. In
turn, a plan sponsor-advisor-discretionary corporate
trustee relationship will provide improved outcomes
for the plan, its participants and their beneficiaries.
It is easier for the plan sponsor to hire and monitor
a discretionary corporate trustee than other fiduciary
service providers because the discretionary corporate
trustee, as a ‘named fiduciary’ retains much greater
responsibility, and can thus attest to a much broader
array of specific fiduciary best practices.
Your goals are our goals.
www.unifiedtrust.com
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