Benefits & ERISA Law

Many professionals have been advising certain governmental employers for a while that just because ERISA doesn't apply to their 403(b) plans, state trust and fiduciary laws do.  The IRS's new 403(b) regulations have exacerbated that exposure to state law liability by now requiring plan documents be maintained, that the employer be actively involved in approving vendors, and that the employer make other determinations under their  plan.

We've heard several people comment that this fiduciary exposure may not be of particular concern to organizations like school districts because of the broad application of the sovereign immunity doctrine. We took a quick look at it in several states, and encourage you to do the same. The law varies from state to state, but it appears that sovereign immunity coverage for school districts may not be as broad as one would assume.

While the decision to adopt a 403(b) plan appears immune from claims, it also appears that, in many states, the ministerial act of implementing the plan may have only limited, if any, immunity.  This especially may become an issue when the school district endeavors to decide whether or not to approve a 403(b) transfer from one vendor to another.  Though the IRS regulations were designed with regulatory compliance in mind, the act of approval of a particular investment vendor implicates the fiduciary's role-even in the non-ERISA setting.