Difference Between a Trustee & Custodian Pension Plan

by Cindy Quarters, studioD

The jobs of the trustee and the custodian are two different tasks, but both are important to a pension plan or other type of trust. Although it is possible that these tasks may sometimes be carried out by the same party, there is a definite line between the two, and both must exercise integrity and be trustworthy in order to keep the pension plan assets safe.

Pension Plan

A pension plan is a type of retirement plan that holds assets for the plan owner until she retires, then distributes money from the plan on a regular basis. This usually involves monthly payments that are a source of income for the pensioner. The payments may last for a set period of time or for the rest of the person’s life, depending on the type of plan. Most kinds of plans involve investments as part of the plan, and these can cause the plan to either gain or lose value over time.


The trustee of a pension plan is the person or entity charged with the responsibility of taking care of the assets in the plan. He is allowed to make decisions regarding investments and the management of the assets, and he must exercise a high level of care in doing so. The trustee has a fiduciary responsibility, meaning he must manage the assets in the best interests of the plan owner, and he can be sued by the trust’s beneficiaries if he mismanages the funds.


The custodian of a pension plan is the entity, usually a bank or other financial institution, that has physical control of the contents of the pension plan. The custodian is responsible for protecting the pension plan from theft and for keeping it secure, but is not entitled to make any decisions regarding the funds. The custodian is obligated to take direction from the trustee in terms of releasing money for investments or other authorized transactions.

Conflict of Interest

A pension plan trustee can also be the custodian of the funds, but in some cases a conflict of interest may arise. If the trustee stands to make a profit from how the assets are placed, that transaction may not be allowed under provisions of the Employee Retirement Income Security Act (ERISA). Instead, the trustee would be required to secure similar investments from an alternate custodian, in order to avoid creating a conflict of interest.

About the Author

A recipient of a business and technology degree from the master's program at West Coast University, Cindy Quarters has been writing professionally since 1984. Past experience as a veterinary technician and plenty of time gardening round out her interests. Quarters has had work featured in Radiance Magazine and the AKC Gazette.

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