Who holds my money?

The plan’s money sits in a trust account at a custodian, or with an insurance company as an annuity contract, in the plan’s name. Federal pension law requires a plan’s assets to be held in trust by one or more trustees, and the trustee has exclusive authority to manage and control them.

A cash balance plan is a kind of defined benefit plan, so the rules in this answer apply to it.

Insurance contracts are one exception to the trust rule. A custodian is the bank or brokerage firm that keeps the trust’s account. The plan administrator and the actuary do work for the plan, but neither one owns the plan’s money. In the statute’s own words, “the trustee or trustees shall have exclusive authority and discretion to manage and control the assets of the plan,” with exceptions the plan document can set.

Contributions are paid to the plan’s trust account at a custodian, or to the insurance company as premium. Contributions are never paid to Defined Benefits LLC or to [PARTNER FIRM LEGAL NAME]. Your plan’s custodial agreement and advisory agreement state exactly who may give instructions on the account; ask for both before you sign.

The custodial agreement or the annuity contract is the document that shows where the money sits, and it belongs in the business’s own files. The other papers a plan owner should hold are in the list of plan documents, and the steps to open a plan are set out on the page about starting a plan.

In most small plans the business owner serves as trustee. The trustee signs for the plan’s account and directs its investments. The trustee is also a fiduciary under federal pension law: the trustee must act solely in the interest of the plan’s participants, must invest prudently, and is personally liable for losses caused by a breach of those duties.

No contract can remove that liability; the statute makes any such clause void. In a plan that covers employees, every fiduciary and every person who handles plan money must be covered by a fidelity bond of at least 10 percent of the funds handled, no less than $1,000 and, in the usual case, no more than $500,000. The bond answers for fraud or dishonesty, not for investment losses.

The trustee, usually the owner, signs for the trust and controls its assets, and the money itself sits at a custodian or an insurance company in the plan’s name. The law also stands between the owner and the money: the assets belong to the plan for its participants, and money comes out only as a distribution the plan allows.

The statute puts the duty this way: “a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” An owner who serves as trustee is a fiduciary under that rule. When the plan may pay you, and what tax applies, is set out on the page about taking money out.

The plan’s money stays where it is, at the custodian or insurance company, in the plan’s name, and the trustee keeps control of it. When the plan document names no administrator, federal pension law makes the plan sponsor, which is the employer, the administrator, so the business hires a new actuary and administrator.

The Department of Labor’s program for abandoned plans is written for individual account plans, such as a 401(k), and not for a defined benefit plan. Keep the plan document, the trust agreement and the custodial or annuity contract in the business’s own files, so that a new firm can pick up the work.

Expect the plan document, the trust agreement, the custodial account agreement or the annuity contract, the summary plan description, the actuary’s valuation each year, and the signed Form 5500 with its Schedule SB. The annuity contract names its owner; check that line against the plan’s trust agreement.

In a plan that covers employees, a participant can ask in writing for the trust agreement, the contracts and the other documents the plan runs under, and the administrator must furnish them. The enrolled actuary, the licensed actuary who certifies the plan’s funding, signs the Schedule SB each year.

The Pension Benefit Guaranty Corporation (PBGC), the federal pension insurer, insures most private defined benefit plans, but not all. A plan of a professional service employer, such as a medical, dental, law, accounting or architecture practice, is not covered if the plan has never had more than 25 active participants at any time after September 2, 1974.

A plan maintained only for substantial owners, meaning owners of more than 10 percent of the business, measured over a 60-month look-back, is not covered by the PBGC either. Paying premiums does not change that; in the PBGC’s words, “If a plan is not covered by PBGC, paying PBGC premiums will not trigger coverage.” For a covered plan ending in 2026, the PBGC’s maximum guarantee at age 65 is $7,789.77 a month as a straight-life annuity.

The statute’s list of professional individuals includes physicians, dentists, attorneys at law, public accountants and architects, and it is not a complete list. Ask the actuary whether your plan is covered before anyone tells you it is insured.

If a brokerage firm that holds the plan’s account fails, the Securities Investor Protection Corporation (SIPC) restores missing securities and cash up to $500,000, including $250,000 for cash. SIPC does not cover a fall in market value, and it does not protect fixed annuity contracts that are not registered with the Securities and Exchange Commission.

When an insurance company fails, state insurance law decides what happens to its annuity contracts, and the rules differ from state to state. Whether the federal pension insurer covers the plan itself is a separate question, answered in the section on PBGC coverage.

A plan covered by Title I of ERISA, the federal pension law, may not assign or alienate benefits, and the Supreme Court has held that such benefits stay out of a bankruptcy estate. Exceptions exist for qualified domestic relations orders, federal tax levies and certain crimes against the plan.

A qualified domestic relations order is the court order that divides a plan benefit in a divorce. The statute’s rule reads: “Each pension plan shall provide that benefits provided under the plan may not be assigned or alienated.”

What happens to the plan and its money when the business closes or sells is set out on the page about ending a plan.

Yes, if you are the trustee. The trustee directs one pooled portfolio for the whole plan, with or without a paid adviser, and participants cannot pick investments for their own accounts. The trustee must still invest prudently and diversify, and the actuary still certifies the funding each year, whoever picks the investments.

How to check a provider and an actuary is set out on the page about whether these plans are legal.