hi everyone. just as a way of background, i work for a TPA that specializes in 457(e)(11) plans for volunteer firefighters. i have a math degree and have been mainly involved in the record keeping aspects but am getting more and more involved in the trust arrangements and the ideas of "trustee" and "custodian".

i don't have any formal schooling on these topics so i was wondering if i could be pointed to a site or information on what the technical/legal difference is between a custodian and trustee, as the terms seem to be used interchangeably but i'm sure they shouldn’t be.

thanks--hope i'm posting this in the right forum...........

in a nutshell...

Custodian means they only hold the funds.
Trustee means they are taking a fiduciary responsibility regarding the plan.

you may want to see if your firm has a Pension Answer book or ERISA Outline book. See the definition of trustee or fiduciary.

Either way (custodian/trustee) there should be some sort of agreement between the plan sponsor and custodian/trustee on their duties (hopefully!)

A trust is a separate legal entity, separate from the beneficiary(ies). The trustee is the "legal" owner of the assets held in the trust and the beneficiary(ies) is(are) the beneficial owner(s).

A custodial account is simply a contractual relationship whereby one person - the custodian - holds assets which are legally and beneficially owned by another person; the custodial account is not a separate entity.

Of course, in the world of qualified plans and IRAs this distinction is largely meaningless.

THANKS!

that was very helpful. these are sponsored by local governments and based on our interpretation of state law, it was always our interpretation that the local government should be the trustee because they are the legal owners of the assets of these programs (part of which makes them tax defered to participants). we want to have these plans be funded and therefore have been set up with rabbi trusts, but we have been told by one attorney that in a rabbi trust the trustee must be a corporate trustee--it can't be the municipality (or the individuals making up the board).

our firm and the clients do have documentation but i am trying to understand it for myself so i can have a better handle on what we do.

and these are non-qualified plans, so i don't know how that adds to the equation.

thanks again.

You might want to look at Code ss 457(g). A rabbi trust does not work for a plan maintained by an "eligible employer" - that is a governmental employer. The assets must be separated from the government (that is they can't be owned by the government) and held by a trust or a particular type of custodial agreement "for the exclusive benefit of participants and their beneficiaries."

Oops - sorry I see that you are talking about 457(e)(11) plans, which are not deferred compensation plans subject to ss 457(g).