Jump to content
lhadens

Fiduciary Responsiblity For A 457(b)?

Recommended Posts

Hi Everyone;

 

As an employee of a state college, I have been encountering a problem with the employer not contributing my payroll deductions for a 457(b) until very late (sometimes as much as a month difference between the deduction and the final credit date).

 

Although I know that ERISA doesn't directly apply, I'm nonetheless trying to establish exactly what ARE the fiduciary responsibilities of a governement employer offering a 457(b) fund, and whether such delays are acceptable or even legal.

 

Surely that can't do whatever they want whenever they want with your money, can they?

 

Thanks!

 

Lucy

Share this post


Link to post
Share on other sites
Guest Sierra

Hi Everyone;

 

As an employee of a state college, I have been encountering a problem with the employer not contributing my payroll deductions for a 457(b) until very late (sometimes as much as a month difference between the deduction and the final credit date).

 

Although I know that ERISA doesn't directly apply, I'm nonetheless trying to establish exactly what ARE the fiduciary responsibilities of a governement employer offering a 457(b) fund, and whether such delays are acceptable or even legal.

 

Surely that can't do whatever they want whenever they want with your money, can they?

 

Thanks!

 

Lucy

 

 

Just ask the payroll people what's going on and if there is a problem are they in the process of correcting it.

 

Let us know what they say.

 

Joel L. Frank

 

Share this post


Link to post
Share on other sites

Actually the employer fiduciary requirements of a 457 plan are much greater than with a 403(b). Your employer is required to maintain a Plan Document which spells out in detail the workings of the plan. I encourage you to contact a benefits offical and ask to see a copy of this document. Perhaps there is information about contribution date in this document. It is my understanding that employers are required to transmit employee contributions to retirement plans as soon as they can reasonably be segregated from the employer's general assets, but not later than the 15th business day of the month immediately after the month in which the contributions were withheld or received by the employer. Translation: the maximum time it should take is 45 days, however, employers can and should complete this process much quicker. It is not uncommon for employers to complete this process the same day that paychecks are issued. Given the ease of electronic transfer there is no reason this cannot be performed in 24 hours. I'll be curious to see what others say about this.

 

The following comes from our 457 FAQ section

 

Other 457(b) points of note

• Unlike the 403(b) plan, the employer must create a plan document detailing the specific rules of the plan.

• Your employer's plan document will be the best source of information for your particular situation.

• A 457(b) plan must be held in a trust for the exclusive benefit of the plan's participants and beneficiaries. Section 457(g)(3) of the IRC allows public (governmental) plans to use qualifying annuity contracts and/or custodial accounts in lieu of, or in addition to, a trust to satisfy this requirement.

 

Dan Otter

Share this post


Link to post
Share on other sites
Guest Sierra

Actually the employer fiduciary requirements of a 457 plan are much greater than with a 403(b). Your employer is required to maintain a Plan Document which spells out in detail the workings of the plan. I encourage you to contact a benefits offical and ask to see a copy of this document. Perhaps there is information about contribution date in this document. It is my understanding that employers are required to transmit employee contributions to retirement plans as soon as they can reasonably be segregated from the employer's general assets, but not later than the 15th business day of the month immediately after the month in which the contributions were withheld or received by the employer. Translation: the maximum time it should take is 45 days, however, employers can and should complete this process much quicker. It is not uncommon for employers to complete this process the same day that paychecks are issued. Given the ease of electronic transfer there is no reason this cannot be performed in 24 hours. I'll be curious to see what others say about this.

 

The following comes from our 457 FAQ section

 

Other 457(b) points of note

• Unlike the 403(b) plan, the employer must create a plan document detailing the specific rules of the plan.

• Your employer's plan document will be the best source of information for your particular situation.

• A 457(b) plan must be held in a trust for the exclusive benefit of the plan's participants and beneficiaries. Section 457(g)(3) of the IRC allows public (governmental) plans to use qualifying annuity contracts and/or custodial accounts in lieu of, or in addition to, a trust to satisfy this requirement.

 

Dan Otter

 

Dan: The first bullet point needs to be deleted in light of the Written Plan Document requirement of the new 403b regs.

 

Joel

Share this post


Link to post
Share on other sites

Dan: State institutions are exempt from ERISA requirement that employee contributions must be remitted not later than the 15th day of the month following the month the contributions are withheld. Under reg. 1.457-8(a)(2)(ii) employee contributions from a govt 457b plan must be transferred to the trust within a period that is not longer than is reasonable for the proper administration of the employee accounts. The regs use the 15 day rule you cite as an example, not a requirement.

 

Most states or municipal govt have complex rules that govern remitting employee contributions to a deferred comp plan and usually require that the contributions be remitted to a central payroll administrator or to the treasurer who will not remit the contributions until all information has been verified and the employer's check has cleared.

Share this post


Link to post
Share on other sites

You are exactly right intruder.

 

1.457-8(a)(2)(ii):

 

 

"Amounts deferred under an eligible governmental plan must be transferred to a trust
within a period that is not longer than is reasonable for the proper administration of the participant accounts
(if any). For purposes of this requirement, the plan
may
provide for amounts deferred for a participant under the plan to be transferred to the trust within a specified period after the date the amounts would otherwise have been paid to the participant. For example, the plan could provide for amounts deferred under the plan at the election of the participant to be contributed to the trust within 15 business days following the month in which these amounts would otherwise have been paid to the participant.

Of course, the operation of the plan must follow its terms, so if the 457(b) plan document has language requiring something earlier, then those terms must be followed.

 

Now, just for fun, if this was a private college (thus not a government sponsored 457(b) plan), then the deadline for the 457(b) annual deferral amount would be found in the plan documents, since there is no deposit deadline in the regulations for a 457(b) plan sponsored by a nongovernmental entity.

Share this post


Link to post
Share on other sites

I too, would like to hear from anybody regarding the applicable Fiduciary Standards that do apply to Governmental Plans (457 or other) that are not governed by ERISA.

 

I am aware of several municipalities that have a DCP Committee who's decisons regardiing its Vendors & Fees have been influenced by elected officials who also happen to be a board members of an association of municipalities which has an endrorsement arrangement (for a fee) with these municipality's primary Vendor.

 

The situation is almost identical to the ING/NY Teachers Union situation, but the entities are different & different jurisdictions and statutes probably apply. Is there an exclusive benefit rule & who enforces it?? Any ideas would be appreciated.

 

Kind Regards,

 

Danc

Share this post


Link to post
Share on other sites
Guest Sierra

I too, would like to hear from anybody regarding the applicable Fiduciary Standards that do apply to Governmental Plans (457 or other) that are not governed by ERISA.

 

I am aware of several municipalities that have a DCP Committee who's decisons regardiing its Vendors & Fees have been influenced by elected officials who also happen to be a board members of an association of municipalities which has an endrorsement arrangement (for a fee) with these municipality's primary Vendor.

 

The situation is almost identical to the ING/NY Teachers Union situation, but the entities are different & different jurisdictions and statutes probably apply. Is there an exclusive benefit rule & who enforces it?? Any ideas would be appreciated.

 

Kind Regards,

 

Danc

 

 

Backround information: Prior to ERISA, private employees were at the mercy of their employer when it came to their rights to a pension. The Federal law for all intents and purposes was designed to benefit the employer and not the employee. So because of the horror stories of the early 1970s, brought on by stagflation, the Congress decided to write brand new law when it comes to private pension and welfare benefit plans. This law is now in its 34th year.

 

Having said that, the State plans are ERISA exempt because the legislators at the time felt that the fiduciary laws of the various states will adequately cover and protect participants in these governmental plans. See: Spitzer Vs. ING/NYSUT

 

Now Danc, to your answer: There is definitely an "exclusive benefit rule" and the various state courts, if need be, enforces it. The exclusive benefit rule should be spelled out in the Written Plan Document. It should also be spelled out in the Summary Plan Description (SPD).

 

Peace and hope,

Joel L. Frank

 

Share this post


Link to post
Share on other sites

Joel,

 

I thought that 457(b) plans sponsored by tax-exempt agencies were really only required to disclose a benefits claim procedure (ERISA §503), not a full SPD. And, I thought 457(b) plans sponsored by a governmental agency were exempt from these requirements.

Share this post


Link to post
Share on other sites
Guest Sierra

Joel,

 

I thought that 457(b) plans sponsored by tax-exempt agencies were really only required to disclose a benefits claim procedure (ERISA §503), not a full SPD. And, I thought 457(b) plans sponsored by a governmental agency were exempt from these requirements.

 

 

Hi John:

 

A governmental 457(b) Plan Sponsor (the employer) must operate the Plan pursuant to a written Plan Document which includes the establishment and appointment of a Board of Trustees. The members of the "Board" are plan fiduciaries. The individual investment accounts must be held in a formal Trust if they are not invested in annuity contracts or custodial accounts. The Trustees are responsible for the appointment of a Plan Administrator who is responsible for writing the Summary Plan Description.

 

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

NYC

Share this post


Link to post
Share on other sites

Thanks to everyone for your postings thus far...

 

To answer one question - yes, I have been in contact with the HR and financial offices, but I am frequently getting the "oops, we forget to transfer the money" responses. I always wonder what the Feds would do if they said "oops, we forgot to send in the payroll taxes"...

 

If I understand what everyone is saying, then, I guess in the end:

 

a.) For a government-sponsored 457 plan, the institution only has to do what is reasonable (which can be interpreted and justified to be just about any time frame, with the right slant to the story),

-OR-

b.) Whatever timeframe is spelled out in either the Written Plan Document or Summary Plan Description (of which I have never received a copy of either). I suppose I'll have to pin someone down and get a copy of it...

 

The only item I have right now is the certificate from the annuity company managing my funds, but of course it spells out only their obligations and my relationship with them, not the specific obligations of the institution I work for.

 

What this means to me is that, quite frankly, state organizations really don't have any functional oversight, short of individually pursuing private legal action that is - by all practical accounts - a fiscal nonreality.

 

If anyone else has any further insight into this, however, I would be very interested in hearing, and perhaps I will solicit my Senate/House representatives to consider having ERISA applied to non-profit and government plans as well... it never hurts to speak your mind in these kinds of instances.

 

Thanks!

 

Lucy

Share this post


Link to post
Share on other sites
Guest Sierra

Hi Everyone;

 

As an employee of a state college, I have been encountering a problem with the employer not contributing my payroll deductions for a 457(b) until very late (sometimes as much as a month difference between the deduction and the final credit date).

 

Although I know that ERISA doesn't directly apply, I'm nonetheless trying to establish exactly what ARE the fiduciary responsibilities of a governement employer offering a 457(b) fund, and whether such delays are acceptable or even legal.

 

Surely that can't do whatever they want whenever they want with your money, can they?

 

Thanks!

 

Lucy

 

 

Do you have the same problem with your 403b? Moreover, is the annuity the only investment vehicle for your 457. What insurer is underwriting your annuity?

 

Joel

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...