Why trustees need to be more careful


Single Corporate Trustees (SCTs) are undergoing a new direction for a number of reasons, not just the rise of the Professional Trustee. Switching to an SCT model, or moving from one SCT to another, can mean changes in member protection and trustee protection. The Axminster case raised new questions. There must be a fair balance between directors and members, but directors should not be taking more risk than they need to be.

Members need someone ready to run the program. Benefits should be funded by contributions and investment returns, not from the pockets of their trustees. It is reasonable for trustees and trustees, professional or otherwise, to seek appropriate protection.

Why have an internal SCT?

The “corporate veil” is not armor, and directors could still incur liability, but it is generally accepted that directors of trust companies are not trustees themselves. It surprises lawyers that those who volunteer to act as plan trustees are not asking for that extra layer of protection. You can bet the sponsor board has it!

SCTs also provide continuity. This can mitigate the legal risk in other ways, including for the sponsor, for example, it can help to avoid slippages or delays in the execution of acts. Membership representation can be established if this is important.

Trade protections between outgoing and incoming administrators are considered market practice in other contexts. The Axminster decision potentially provides a difficult analysis:

  • a current trustee has no responsibility for any breach of trust that occurred prior to the appointment;
  • a former trustee remains liable for his breach of trust, but generally with a limitation period of six years.

If strictly enforced, it would mean that a change of trustee has an effect on underpayment claims and remediation exercises.

Why should trustees be exposed to claims for six years after changing jobs, retiring, or bringing in a new single professional trustee? Or are they exempt by program rules, meaning underpayment claims are cleared? This is usually the employer’s decision – it may even sound like a solution.

Trustee liability coverage may end upon appointment of an SCT. Outgoing trustees should check what is happening with the claims made later. We recently saw a buried interrupt option that they can subscribe to even if the program is running – well worth checking out!


The outgoing trustees could be reassured by an indemnity from the new trustee (s) who will have the assets. Professional trustees are unlikely to agree. The incoming administrator might want compensation going the other way. The best position for members is probably continuity which we always thought applied. It can be written.

Trustees can reasonably expect standard market protections which are not always present, such as: the personal liability exemption of current and former trustees and directors; liability insurance for trustees; and the power to pay for wind-up insurance out of plan assets.

When the plan does not provide compensation from employers, it is not unreasonable to ask. It’s not a good idea to seek compensation in a specific uncomfortable situation – why shouldn’t trustees have compensation up front?

Directors of trust companies must be careful to maintain the line that it is the company that is the trustee. Minutes, communications from members or other official documents may present them as trustees. Trust law is flexible and trusts can be implied.

The trend towards professional trustees is accelerating. No one is trying to put up barriers to entry – or exit. But fiduciary changes can have implications for all parties and there are business and fiduciary issues to consider. Diet specific solutions can be found. Yes, member complaints have been rare, but we all know that the liability of pension trustees and the liquidation market has hardened considerably. If insurers are increasingly risk averse, perhaps trustees should follow suit.

Anna rogers is a senior partner at Arc Pensions Law

Case in Brief: Mitigate Your Risks

As the retirement insurance market tightens, people in fiduciary positions might want to become a bit more commercial about mitigating their own legal risks. It is reasonable to seek protections that meet market standards and it is in the interests of members that there is an offer of trustees.

The internal model of the single trustee protects its directors, but it is far from universal. A change of directors may have implications for members after Axminster. It’s not just about appointing unique professional trustees. Negotiated risk allocation between exiting and entering administrators is not common in pension plans – perhaps it should be.


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