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Re: DB Plan T'ees' authority to fund benefit that only retirees will g

Guest songlaw

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Guest songlaw

In an earlier question, I asked if the trustees of a governmental plan (specifically, the DB plan of the municipality's Police Officers and Firefighters) can use part of the plan's overfunded surplus to make a COLA increase to the retirees' health insurance coverage without also having to give the same stipend to the current participants. I now know that they can do this. In addition, however, I need to know whether:

(a) the Trustees would have an obligation to listen (and, perhaps, to bow) to current participants if they were to object to such an allocation; and

(B) the Trustees could turn a deaf ear to such potential objections even if the allocation to increase the retirees' medical coverage were to be taken, not from the overfunded surplus, but from the City's (plan-sponsor's) current and future (annual) contributions?

I have reasoned that the Trustees could authorize such a "reasonable" allocation (i.e. one that was not clearly unreasonable), even if not taken from the surplus, because they, as fiduciaries, have the authority to decide which allocations, when made to which recipients, are justifiable. Not every participant must benefit from his participation in exactly the same way. Certain retiree benefits, if reasonable and deemed worthwhile by the Trustees (as fiduciaries), may need to be funded whether or not the current participants ever receive or share in those or similar benefits.

Do you agree with me?

Am I correct or mistaken?

Would these additional facts change your answer?

Suppose that the aforementioned Public Employees' DB plan had initially been a contributory plan. Suppose that it was changed to a noncontributory plan about four or five years ago. Suppose that those who made such voluntary contributions (and received the pooled investment tax-free growth and the other advantages of doing so) now believe that they (the "veteran" participants) deserve something more than the participants who have come into the plan since it was changed to a noncontributory plan (the "Johnny-come-lately" participants). The "veterans" believe that they "paved the road" over which the "Johnny-come-lately" participants are driving. At the least, therefore, the "veterans" believe that they should be able to "veto" or dissuade the Trustees from funding an investment (for the retirees) in which the current participants ("veterans" and others) might never share.

I don't believe these "veterans" deserve any special consideration for having made the aforementioned contributions, much less any such special "veto" power. After all, they benefited from having made their voluntary contributions, and the current configuration of the plan would not permit the "Johnny-come-lately" participants to make such "road-paving" contributions if they wanted to do so. If the plan also benefited from the veterans' voluntary contributions, at least to some extent, how would its having done so confer such special authority/consideration, much less such "veto" power, upon the veterans?

What do you think?

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