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Pension Trust

By: EconomyWatch Date: 30 September 2009

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A pension trust fund is a fund that is made up of money which is contributed to by the employer and the employee for pension benefits. Every organization maintains a pension trust fund for its employees and protects liabilities of misappropriation and mishandling of pension funds.

The responsibilities of an appointed trustee include:

administering the funds
investing the money
collecting the earnings and interest
distributing the benefits

All funds paid to a company pension scheme have to be deposited into a pension trust scheme by legislation. This is to avoid a situation where the owners of the business can misappropriate the funds. Alternatively, the funds can count as an asset for the business which may therefore be at risk in case the business fails. It is also critical that the pension trust is protected. This way, the employees can receive full benefits of their own and their employer's payments on retirement.

The right balance needs to be achieved in terms of legislation and law to determine

how a pension trust should be run
who are the trustees with responsibilities to the members

The company pension trust is a three way integration product, with:

the company representing one component
the employee representing the second component
the trustees representing the third one

All need to interact responsibly with each other for the pension trust to work smoothly.

Role of Trustees in a Pension Trust

Regarding pension trusts, the trustees are responsible for managing the funds. They also make sure that the investments are:

sound
yield appropriate returns
take care of the well-being of existing employees and of employees who are retired.
Trustees also ensure risk free investment return of their employees.

At the time of retirement, or death in service, the trustees are responsible for deciding where and to whom the money is to be paid. If an employee prefers a pension transfer, the trust must also be involved in:

acquiring a transfer value
helping to facilitate the transfer

A trustees' obligations are clearly cut out, but they must also exercise prudence whenever there are claims or disputes pertaining to the other two parties.