81-100 Group Trusts
81-100 Group Trusts (Group Trusts) for retirement plans have been around for many years, but today they are seeing a great resurgence in popularity. They are simple in concept but powerful in their capacity to provide efficiencies to retirement plans including small retirement plans. Given the many benefits that they offer, it is somewhat surprising that they have not become more widespread with retirement advisors, record keepers and custodians. However, that is beginning to change.
It is more important than ever that retirement professionals become fluent in the language of Group Trusts and in their operations and mechanics. Undoubtedly, every serious 3(38) investment manager, every recordkeeper and every custodian have tremendous opportunities and profit to gather from the use of Group Trusts with their clients and prospects. Certainly, the use of Group Trusts in their practices will not only help them secure more business, but it will provide meaningful and significant financial advantages to the adopting plans and plan participants.
What is an 81-100 Group Trust?
A Group Trust is a trust that is designed to hold the assets of many individual or separate retirement plans. This means that each adopting plan of the Group Trust operates independently as always with its own plan provisions, testing, 5500 filing and so forth, but the investments for each adopting plan are pooled within the Group Trust along with the assets of other retirement plans. This trust becomes a powerful vehicle in qualifying for and negotiating more favorable share classes of the mutual funds used in fund lineups. The trust also becomes the mechanism for providing operational simplicity and fiduciary oversight of the underlying mutual funds.
A Group Trust can be tax exempt by applying for and claiming a special 81-100 tax status from the IRS. This status assures that all employer dollars in the Group Trust are protected from taxation as all plan assets are under ERISA. All of Alta Trust's group trusts have claimed the 81-100 exemption to provide assurance to plan sponsors and advisors.
Benefits of a Group Trust
A Group Trust offers plan sponsors with a powerful array of benefits and advantages including operational efficiency, fiduciary oversight and cost savings. Alta Trust, as the the trustee, provides fiduciary oversight by engaging a 3(38) investment manager to select and monitor the funds which will support the fund lineups for each adopting plan. These funds are reviewed quarterly for suitability and performance.
The Group Trust provides a vehicle that pools assets and allows the adopting plans to qualify for better share classes of mutual funds, including institutional funds and collective investment funds with high minimums to deliver meaningful cost savings to retirement plan participants. Plan sponsors and advisors will find that the time spent in selecting investment funds is significantly reduced and the process of managing their fund lineups is greatly simplified and enhanced by participating in a Group Trust.
Who Can Benefit From an 81-100 Group Trust?
Retirement plan advisors
3(38) investment managers
81-100 Group Trust FAQS
What is a Group Trust?
A Group Trust is established with the intent of pooling assets to gain a competitive advantage, either financial or operational or otherwise, generally for a group of investment funds, retirement plans, legal entities or companies.
What is an example of a Group Trust?
Advisors often act as investment consultants to retirement plans by setting up mutual fund lineups in 401k plans. These lineups generally consist of 10 to 20 or more funds. Even retirement advisors with many plans having a few million dollars each quickly find that they are subject to share classes with very high fees. In total they may represent a large amount of money in each mutual fund, but because the fund companies look at the amount in each plan, they cannot take advantage of their size, and they lose their bargaining power.
The solution is to set up a 81-100 Group Trust with plans with a common custodian. Alta Trust can establish the trust and represent the group of employers to get the best pricing for each mutual fund on a commingled basis.
How much can an employer save by setting up a Group Trust?
While the results differ from trust to trust, some Group Trusts have seen savings of 10 to 25% for its beneficiaries.
How are Group Trusts regulated?
Group trusts have been around for a very long time and they get their validity from trust laws that permitted and encouraged them. They can also be recognized as 81-100 trusts by the IRS to gain tax exemption for retirement trusts. Alta Trust's group trust documents are intended to be 81-100 compliant.
How are the investments in Group Trusts managed?
Often the trustee of the Group Trust appoints an investment manager to select funds and monitor their performance and appropriateness to be a part of the trust. The investment manager provides periodic reports to the trustee who also provides fiduciary oversight.
Can a Group Trust provide operational benefits for advisors and retirement plans?
Yes, advisors and employers often primarily focus on the operational advantages that Group Trust provide. Advisors are able to make adjustments to fund lineups easily by replacing an underperforming fund in the trust with a better fund. The advisor can make changes within the Group Trust without disrupting the employers' work.
How can an Association benefit from a Group Trust?
Associations, trade groups, municipalities, colleges, school districts and other organizations can provide a valuable benefit to their members by setting up a Group Trust. As mentioned previously, associations can provide their members with significant investment savings and better fiduciary oversight by pooling the assets of its members’ retirement plans, including 401k plans, 403b plans and other defined contribution and defined benefit plans.
The association itself can assist in the effort to provide and maintain these benefits and qualify to receive administrative revenue for the organization.