Should the retirement plan be trusteed or insured?

No fixed answer can be given to this question. The answer depends on the objectives of the organization, the investment climate at the time a plan is initiated, the size of the organization, the personnel of the organization, and many other factors. The debate principally focuses on pension plans; the majority of profit-sharing plans utilize a trust, since, typically, the investments of a profit-sharing plan will be substantially in common stocks. ERISA [see What is ERISA and how does it affect retirement plans? at ¶47,110 ] requires all employee benefit plans to be trusteed except for insured plans, annuity plans and certain other plans.

A trustee of a trusteed plan is a fiduciary for purposes of the application of the fiduciary responsibility rules of ERISA. Thus, a plan trustee may be personally sued by any employee (a plan participant or other interested employee) or by the Secretary of Labor. However, an insurance company is not considered to hold plan assets subject to the fiduciary responsibility rules if a plan purchases an insurance policy from it, to the extent that the policy provides payments guaranteed by the company. But if the policy provides for payments that may vary with investment performance (such as a variable annuity may provide) then the plan assets attributable to such a policy will be subject to the fiduciary rules.