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Municipal government 401(a) Fiduciary Standard?


Guest Crossbridge-BWF
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Guest Crossbridge-BWF

In researching the topic for fiduciary standard of a governmental 401(a) plan, I have not found an ERISA standard. In fact, I have been advised by many well- respected people in the 401(a) plan market that there is no fiduciary standard for a governmental 401(a) plan. "The Governement is not going to sue the government" is the standard response I am receiving. However, i cannot fine any supporting documentation to back this up.

Further, are there state fiduciary imposed standards on a state municipality for a 401(a) plan?

Thank you in advance.

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You wriote: "The Governement is not going to sue the government" is the standard response I am receiving.

The standard response is a bit shallow. A government plan is not covered by ERISA so the U.S. Department of Labor is not involved in enforcement of ERISA requirements. However, fidudciary duty is what is owed by fiduciaries to the plan participants, not to the government. Even if no government enforcement agency is going to take action on behalf of participants, participants can still protect their interests. The fiduciary standards will be found in state statutory law and common law. The standards and the consequneces of breach may be a bit more difficult to determine without the nice ERISA package at the doorstep, but it is mistaken to think that there are no standards or consequences.

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Guest Matthew Gouaux

Although governmental plans are exempt from ERISA, retirement plans sponsored by state and local governments are subject to state law, and the person or board with authority to make decisions with respect to such a plan may be subject to fiduciary standards imposed by state law. For example, California Constitution, Article XVI, section 17 imposes fiduciary standards similar to those found in ERISA on the governing body or board of a public employees' pension or retirement system. In many states, the law in this area is not well developed. In my view, where state law is not well developed, one should look to ERISA for guidance and best practices. (Also, I would disagree with the advice you were given that a government is not likely to sue a government. That happens all the time. In any event, both parties to a fiduciary breach lawsuit could be someone other than a government or government official. Such a lawsuit might be brought by a participant, beneficiary, union, employer or anyone else with an interest in the plan, against a board, individual board member.

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I agree with both QDROphile and Matthew.

The ERISA fiduciary duty was primarily an effort at codifying the common law fiduciary duty doctrines. These common law principles would yet apply to contexts where ERISA does not preempt that state law. As Matthew pointed out, there might also be specific state law enactments, such as the provision of the California constitution that he cited that spells out that government plan officials bear these fiduciary duties.

In short, there will be a body of law that requires one having control over another's property (here, retirement benefits) to act as a prudent man would under such circumstances.

It is possible that those respected 401(a) authorities specified that under ERISA there is no fiduciary duty on those that operate a governmental 401(a) plan.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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In researching the topic for fiduciary standard of a governmental 401(a) plan, I have not found an ERISA standard. In fact, I have been advised by many well- respected people in the 401(a) plan market that there is no fiduciary standard for a governmental 401(a) plan. "The Governement is not going to sue the government" is the standard response I am receiving. However, i cannot fine any supporting documentation to back this up.

Further, are there state fiduciary imposed standards on a state municipality for a 401(a) plan?

Thank you in advance.

Governmental pension plans are exempt from regulation under ERISA, See Daniels-Hall v. National Education Association, 2008 WL 2179530 (W.D Wash). They are also exempt from the Uniform Prudent Investor Act.

State and local government retirement plans are subject to state fiduciary rules that apply to public plans, e.g, CA. However, some states such as FL exempt plan officials from liability for performing their official duties under the doctrine of soverign immunity. FL AGO 89-63.

mjb

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