457(b) Employer Fiduciary

[Guest scottyd]

There is no doubt that 457(b) governmental plans come with a fiduciary responsibility. My question is where an employer should look to find a framework for this responsibility - should they look to ERISA? If so are they bound by that, meaning could they be sued for breach of fidcuciary responsibility under ERISA type topics even though they aren't technically covered by ERISA? How does an employer specifically define the Fidcuciary responsibilities it has and how do they document that they followed specific procedures related to that responsibility?

Next, suppose a district offered a 457(b) with 4 options, 2 options paid an upfront commission, 1 paid an ongoing fee to an advisor via AUM, another didn't compensate an agent at all. The districts contracts exclusively with agents to educate participants on their investment choices and it is highly unlikely the agents will disclose or sell the "no-load" option. My question is won't the agent, who under ERISA would be a fiduciary, breach his/her fiduciary duty everytime he recommends a commission/fee option over the no-load option because of "Prohibited Transaction Rules?" The agent benefits by recommending one option over the other which clearly creates a conflict, it seems to me that this is a breach, if it isn't why not and isn't it a breach under ERISA? Wouldn't this create a strong case for an employer to use a single vendor or only vendors who have the exact same compensation structure?

Thanks for the help - I see this as a situation that will be coming up a lot in the future.

ScottyD

[mbozek]

Public employers are subject to state laws governing investments for state & local retirement plans. The Plan sponsor needs to retain counsel to determine how to comply with applicable laws.