A discretionary trustee doesn’t have one standard price. Pricing varies by trustee, and a common structure is a percentage of plan assets that steps down as the plan grows, often with a minimum annual fee.
The size of the plan and the duties the trustee takes on both affect what it charges.
The plan can pay the trustee fee from plan assets when the trustee’s services are for running the plan, not for the company’s own benefit, and the fee is reasonable, unless the plan document or trust agreement says the company pays. Deciding to pay it from plan assets is a fiduciary decision.
For a plan covered by ERISA, the trustee generally has to disclose in writing what it will charge before the arrangement starts, including any fee for ending it.
Trustee fees can be negotiated, and comparable quotes, paying for each duty only once, and checking a combined price against separate prices help a plan avoid paying more than it needs to.
A discretionary trustee holds a 401(k) plan’s assets and makes the decisions about them that the company or its retirement plan committee would otherwise make, from choosing the plan’s investments to making sure contributions reach the plan. What that costs is a fair question, and it doesn’t have a single answer. Trustees price their services differently, and the same trustee can charge different amounts depending on the plan’s size and the duties it accepts.
What a plan sponsor can compare is how each trustee charges, what affects the price, who pays, what each trustee has to disclose in writing, and how a plan can keep the fee reasonable.
The checklist below covers what to confirm before hiring a trustee, and its section 05 records each trustee’s fee, what the fee covers, and who pays, side by side.
Plan Sponsor Checklist
Discretionary Trustee Due Diligence Checklist
What to confirm before hiring a trustee, with a fee section that records each trustee’s fee, what it covers, and who pays.
There’s no single price for a discretionary trustee. Pricing varies by trustee and depends on how many trust services the trustee provides.
A common structure is a percentage of plan assets that steps down as the plan grows. A trustee might charge one rate on the first portion of plan assets and a lower rate on assets above that, with a minimum annual fee so a small plan still pays a set amount.
Other structures exist too:
A flat annual fee that stays the same regardless of plan size
No separate charge when trustee services come bundled into another provider’s package. In that case, the provider can report its compensation as one combined figure instead of breaking out the trustee portion.
The base trustee fee may not cover everything. Charges for participant distributions, loans and trades, and fees for leaving a provider can come from the trustee or from the recordkeeper, depending on which one does the work. Either way, the provider charging the fee has to list it in its written disclosure, described below, including any fee for ending the arrangement.
What Affects the Price of a Discretionary Trustee?
These four things affect what a discretionary trustee charges.
Plan assets. When the fee is a percentage that steps down as assets grow, a larger plan pays a lower rate on its assets above each step, though the dollar amount still rises as the plan grows.
The duties the trustee accepts. Trustee fees depend on which services the trustee provides. A directed trustee holds the plan’s money and follows instructions from a named fiduciary, such as the committee. A discretionary trustee takes on more, including the plan’s investment decisions, and a discretionary trustee can take on duties a 3(38) investment manager doesn’t, such as making sure contributions reach the plan. A discretionary trustee isn’t the same role as a 3(38) investment manager or a 3(16) plan administrator, though one firm can hold all three.
Other roles in the same engagement. One firm can serve as discretionary trustee and also as the plan’s 3(38) investment manager or 3(16) plan administrator. Each added role adds to what the firm is responsible for, so a quote that covers several roles isn’t directly comparable with a quote for trustee services alone.
Custody. Holding the plan’s assets can be included in the trustee fee or billed separately by a custodian.
Who Pays for a Discretionary Trustee, the Company or the Plan?
Either one can. The plan can pay the trustee fee from plan assets when the trustee’s services are for running the plan, not for the company’s own benefit, and the fee is reasonable, unless the plan document or trust agreement says the company pays. Deciding to pay it from plan assets is a fiduciary decision.
When the plan pays, the fee can be charged to participant accounts in proportion to each account balance, so larger accounts pay more, or as the same flat dollar amount for each participant. In a plan where participants choose their own investments, participants see the dollar amount charged to their own account on their quarterly statement, along with a description of the services it paid for. Depending on the plan document, forfeited employer contributions can also pay plan expenses such as a trustee fee.
When the company pays,
the fee comes out of the company’s budget, and nothing is taken from participant accounts.
The plan document or trust agreement sets who pays. When it says nothing, the plan can pay. If it says the company pays, the company can amend it so the plan pays in the future. It can’t use plan money to pay back trustee fees the company already owed under the earlier terms.
How Do You Know What a Trustee Is Charging?
For a plan covered by ERISA, a trustee that expects to receive $1,000 or more has to give the plan a written disclosure before the arrangement starts. The disclosure has to cover:
The services the trustee will provide
Whether it will serve as a fiduciary to the plan
All compensation it will receive directly from the plan
Compensation it will receive from anyone else in connection with the plan, and payments among its affiliates that are tied to transactions or charged against the plan’s investments, such as commissions
Any fee it expects to charge when the arrangement ends, and how prepaid fees would be refunded
Whether the fee will be billed to the plan or deducted from plan accounts
Quotes can only be compared when each one covers the same services. That means deciding which duties the trustee should take before asking for pricing, giving every trustee the same information about the plan, and weighing each fee against everything it covers.
Once a trustee is hired, its fee becomes part of what the plan pays in total, and it belongs in the comparison each time the committee benchmarks the plan’s fees.
Is There a Way to Lower Trustee Fees?
Yes. Trustee fees can be negotiated, and these approaches help a plan pay a reasonable price for the services it actually needs:
Get more than one quote. Pricing from several trustees on the same terms shows whether the current fee is in line with what other trustees charge for the same work. The quotes are only comparable when every trustee receives complete and identical information about the plan.
Pay for each duty once. If a discretionary trustee makes the plan’s investment decisions, a separate 3(38) investment manager may be paid to make the same decisions. The same check applies to custody: if the trustee fee already includes holding the plan’s assets, a separate custody fee pays for that work twice.
Compare a combined price with separate prices.
Combining roles such as trustee, 3(38) investment manager and 3(16) plan administrator with one firm doesn’t automatically lower the price. Asking for a price on the combined engagement, a price for each role on its own, and whether any fees are waived shows what combining the roles actually saves.
Ask how the fee changes as the plan grows. An asset-based fee rises in dollars as plan assets grow, even when the trustee’s work stays the same. Asking where the rate steps down, or whether a flat fee is available, shows how the cost will change as the plan grows.
Review the disclosure when it changes. A trustee has to tell the plan about changes to its disclosure, including changes to its compensation, as soon as practicable and no later than 60 days after learning of them. That notice is a natural point to compare the new fee with what other trustees charge.
The lowest fee isn’t automatically the right choice. What matters is whether the fee is reasonable for the services the plan gets.
Before You Ask for a Quote
A quote is only as accurate as the information behind it. Before asking a trustee for pricing, have these ready:
The plan’s current assets and number of participants
The plan’s current providers and what each one does
Which duties the trustee should take on, such as investment decisions, collecting contributions, or serving as 3(16) plan administrator
Who pays the plan’s expenses today, according to the plan document or trust agreement
First Hill Trust Company is a state-chartered trust company that serves as discretionary trustee for retirement plans. We can walk through how our fees are structured, what they cover, and how they compare with what your plan pays today.
Call (206) 625-1800 or click here to schedule a complimentary review, or download the Discretionary Trustee Due Diligence Checklist and work through section 05 with each trustee’s quote first.
Plan Sponsor Checklist
Discretionary Trustee Due Diligence Checklist
What to confirm before hiring a trustee, with a fee section that records each trustee’s fee, what it covers, and who pays.
Trustee fees depend on the duties a trustee accepts. A discretionary trustee accepts more of them, including decisions about the plan’s investments, while a directed trustee carries out instructions from someone else. Comparing the two means comparing what each one would actually be responsible for, not only the fee.
Reasonable costs of carrying out the change, such as a disclosed fee from the outgoing trustee and the cost of moving the plan’s assets, can generally be paid from plan assets unless the plan document or trust agreement says the company pays. Costs tied to plan design decisions made at the same time, such as studying whether to change the plan’s features, are company expenses.
Large plans attach Schedule C to the Form 5500. Schedule C reports each service provider that received $5,000 or more in connection with the plan, including a trustee that reaches that amount.
Not if that employee already receives full-time pay from the company. The plan can reimburse expenses that trustee properly and actually incurs, but it can’t pay the employee for serving as trustee.
It can be. When trustee services come bundled with recordkeeping, the provider can report its compensation as one combined amount instead of breaking out the trustee portion. The provider’s written disclosure says which services the combined fee covers.
U.S. Code of Federal Regulations, Title 29, Section 2550.408b-2, General Statutory Exemption for Services or Office Space
U.S. Code of Federal Regulations, Title 29, Section 2550.404a-5, Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans
U.S. Department of Labor, Understanding Retirement Plan Fees and Expenses, and Tips for Selecting and Monitoring Service Providers
U.S. Department of Labor, Guidance on Settlor v. Plan Expenses
Employee Retirement Income Security Act, Sections 403, 404 and 408(c)
Important Disclosures
First Hill Trust Company is a Washington State-chartered trust company. Investment advisory services are provided by BAC Capital Advisors, an SEC-registered investment adviser and a wholly owned subsidiary of First Hill Trust Company. Registration does not imply a certain level of skill or training. This article is educational. Neither First Hill Trust Company nor BAC Capital Advisors is acting as ERISA counsel or tax counsel to any plan or plan sponsor, and nothing here replaces advice from qualified counsel about your own plan.
Accuracy and currency. Statutory provisions and regulatory descriptions in this article were checked against the cited primary sources as of the date of publication, but First Hill Trust Company and BAC Capital Advisors make no representation or warranty as to the accuracy, completeness, or timeliness of the information, and accept no liability for actions taken in reliance on it. Regulations and guidance change. Confirm current requirements with qualified counsel.
Educational purpose only. Provided by First Hill Trust Company for general informational and educational purposes only. It is not legal, tax, accounting, investment, or fiduciary advice, does not constitute a recommendation regarding any plan, investment, strategy, or course of action, and does not consider any recipient’s specific circumstances. Consult your own qualified advisors before acting.
No offer, agreement, or commitment. Nothing in this material constitutes an offer, solicitation, agreement, or commitment to provide any particular service or to assume any particular responsibility. Descriptions of what a trustee, administrator, adviser, committee, employer, or other party “may” or “can” do are illustrative of how such arrangements commonly work and do not describe the terms of any specific engagement. The actual services provided, the allocation of responsibilities, the scope of any delegation, and the duties of any party are governed solely by the applicable plan documents, trust agreement, advisory agreement, and written service agreements. In the event of any inconsistency, those documents control.
Services and regulatory status. First Hill Trust Company and its affiliates offer retirement plan services, recordkeeping and administrative services, trust and fiduciary services, investment advisory services, and group benefits services, in each case subject to applicable regulatory requirements and the terms of the relevant agreements. Not all services are offered to all clients, in all states, or in all circumstances. Investment advisory services are offered through an affiliated investment adviser; a copy of its Form ADV Part 2A is available upon request. Insurance and group benefits products are offered through appropriately licensed entities. The availability and scope of any service depend on eligibility and the applicable agreements.
Fiduciary status under ERISA. Fiduciary status under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), is determined based on the functions performed and the authority exercised, not on titles or labels. Whether any particular party is acting as a fiduciary, and the scope of any related duties or potential liability, depends on the facts and circumstances specific to the plan and the relationship. Engaging a trustee, adviser, or other service provider does not eliminate a plan sponsor’s or committee’s own fiduciary responsibilities, including the duties to prudently select and monitor any party to whom responsibilities are delegated.
Affiliated entities and conflicts of interest. First Hill Trust Company is affiliated with other entities, including an affiliated investment adviser and entities providing administrative, trust, or other services. These relationships may create conflicts of interest, including where an affiliate is engaged or compensated in connection with a plan. Such conflicts and compensation are described in the applicable service agreements and the affiliated adviser’s Form ADV Part 2A; fiduciaries should consider them when evaluating any engagement.
Collective investment trusts. First Hill Trust Company sponsors and serves as trustee of collective investment trusts and receives fees from plans that invest in them. This creates a conflict of interest when First Hill Trust Company or BAC Capital Advisors discusses, compares, or reviews CITs, including in a complimentary lineup review. CIT fees, investment minimums, pricing frequency, withdrawal terms, and availability vary by fund and are governed by each fund’s participation agreement and written plan. A CIT is not a mutual fund, is not registered with the SEC, and is not FDIC-insured, and investing in a CIT involves risk, including possible loss of principal.
Statutory and regulatory references. References to ERISA, the Internal Revenue Code, and related statutory or regulatory provisions are general summaries only. They are not a substitute for review of the actual statutory text, regulations, or guidance from the Department of Labor, Internal Revenue Service, or other relevant authorities, and they do not address how those provisions may apply to any particular plan, sponsor, fiduciary, or individual. Laws, regulations, and guidance are subject to change and to interpretation by the relevant agencies and courts. Examples, categories, and situations described are simplified for illustration and may not reflect the requirements or circumstances of any particular plan or person.
No guarantee of results; investment risk. References to governance, fiduciary practices, risk reduction, or outcomes describe common industry approaches and potential benefits, not promises or guarantees of any result, of compliance, or of protection from liability, loss, or claims. All investing involves risk, including possible loss of principal; diversification does not ensure a profit or protect against loss. Past performance does not guarantee future results. For more information, contact First Hill Trust Company at (206) 625-1800.
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