Fiduciary responsibility/liability for non-governmental plan?

[Belgarath]

Let's say you have a non-governmental 457(b) plan that qualifies as a "top hat" plan. There is no Rabbi Trust. 457 plans are subject to ERISA, except to the extent that a specific exemption applies. ERISA 401(a)(1) exempts the plan from ERISA fiduciary responsibility.

So, is there potentially State law fiduciary liability? Or, does the fact that the plan is subject to ERISA mean that ERISA preempts any State fiduciary laws, in spite of the fact that ERISA fiduciary rules do not apply? Or, is this one of those dreaded "gray" areas?

[Belgarath]

Some interesting insight into the whole issue in general.

http://www.ca5.uscourts.gov/opinions/pub/12/12-20294-CV0.wpd.pdf

[Peter Gulia]

If a participant really is a select-group executive, shouldn't she have the ability to negotiate contract provisions that make any fiduciary responsibility unnecessary?

[Belgarath]

Well, my answer would be that ERISA preemption should apply. But it seems to me that the issue of ERISA preemption is constantly being litigated, which is why I'm interested in the opinions (general opinions, obviously not case-specific!) of you experts in this arena.

[Peter Gulia]

That a plan is not governed by Parts 2, 3, and 4 of subtitle B of title I of ERISA, does not mean that the plan is not governed by ERISA. If it's an employer's pension-benefit plan or welfare-benefit plan and is not a church plan, governmental plan, unfunded excess-benefit plan, or other plan excluded under ERISA section 4, ERISA governs, and preempts State law as ERISA section 514 provides.

[QDROphile]

Part 5 appies, which includes pre-emption and claims provisions.

[Kevin C]

Which fiduciary duties are you concerned about? Usually when someone mentions fiduciary liability, they are referring to issues related to the plan's assets. In this case, the plan is unfunded.

[Belgarath]

What I'm asking about is something along these lines:

Yes, the plan is "unfunded" but the Plan states that the Participant's "account" will be credited with earnings or losses. The employer invests the money in an "employer" account - not a trust, and not a Rabbi Trust. Although part of the general assets of the employer and subject to creditors, etc., nevertheless, if after 15 years, the participant has lost 30% because the "account" was invested foolishly, there may be a problem. IF the ERISA preemption shield is intact and precludes any recovery, breach of contract, promise, whatever (I'm not a lawyer) than all should be fine. If there is room for something else to override the ERISA preemption, then it should be a cause for concern for whoever does the "investing" of the funds.

In essence, does the ERISA preemption allow for unlimited stupidity or neglect, or is it not so clear-cut.

I use this absurd example just to illustrate why I'm even asking the question.

Thanks.

[Peter Gulia]

Belgarath, your example isn't absurd; those possibilities are why some executives negotiate for deferred compensation that's not measured by the employer's investments, but rather by a specified formula (sometimes as straightforward as accumulating amounts with a specified rate of interest), or according to the executive's investment instructions. How an employer and an executive negotiate concerning time value of money and investment risks is just one more dimension of the overall negotiation of deferred compensation.

[jondoejag2]

Here is what I have found for non-ERISA plans after talking to about 40-50 attorneys all across the US. Some of those attorneys are the ones that give out all of the answers on question and answer boards. Non-ERISA plans do not allow attorneys to do class action lawsuits. All of those attorneys I spoke to reviewed all of my information and said the situation was illegal and they could not do that, However, each of those attorneys also said they would not be able to take my case for one reason or another and then left me hanging for weeks and weeks or even months, then sent me to other attorneys who did the same thing. I have come to the conclusion that if you cannot find an attorney to take your case, then the action is not illegal. That means that anyone investing your money can do whatever they want to with it and there is nothing you can do about it other than to quit giving them money. Attorneys can give you every reason in the world why certain actions are illegal, but as far as retirement attorneys go, at least the 40-50 investment specialist attorneys I talked to are full of BS!