Pension Fundamentals – Session #2 Investment of Plan Assets

Investment of Plan Assets

 

OBJECTIVE

To provide retirement system trustees and plan administrators a general overview regarding the investment of public plan assets.

OUTLINE

I. YOUR ROLE AS A TRUSTEE “FIDUCIARY RESPONSIBILITY”

WHO IS A “FIDUCIARY”?

The term “fiduciary” is derived from early Roman law and means “a person having the character of a trustee; one who has a duty to act for another’s benefit.” Those who have discretionary authority in connection with the administration of employee benefit plans, whether they are designated administrators or trustees, or simply members of the governing boards, committees or commissions, are “fiduciaries” and are charged with fiduciary responsibilities.

WHAT LAWS ESTABLISH FIDUCIARY RESPONSIBILITIES?

The laws encompassing fiduciary responsibility are a complex network of federal and state statutes and case law, all of which define and delineate the parameters and rules within which a trustee must operate.

Trustees of public employee retirement systems in the State of Michigan must comply with the fiduciary duties as provided by the Public Employee Retirement System Investment Act, Public Act 314 of 1965, as amended (“Act 314”).

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Pension Fundamentals – Session #1 Fiduciary Responsibility

Fiduciary Responsibility – Your Role as a Trustee

 

INTRODUCTION

The following is intended to serve as a general overview of fiduciary responsibilities relating to the administration of public employee retirement systems.

WHO IS A “FIDUCIARY”?

The term “fiduciary” is derived from early Roman law and means “a person having the character of a trustee; one who has a duty to act for another’s benefit”. Those who have discretionary authority in connection with the administration of employee benefit plans, whether they are designated administrators or trustees, or simply members of the governing boards, committees or commissions, are “fiduciaries” and are charged with fiduciary responsibilities.

WHAT LAWS ESTABLISH FIDUCIARY RESPONSIBILITIES?

The law encompassing fiduciary responsibility is a complex network of federal and state statutes and case law, all of which define and delineate the parameters and rules within which a trustee must operate.

In the private sector, fiduciaries must comport with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) which defines a “fiduciary” as any person who:

(1) exercises any discretionary authority or control over the plan assets;

(2) renders investment advice for a fee; or’

(3) exercises discretionary authority or responsibility for plan administration.

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Legal Report – Spring 2011

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2011 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions of interest to Michigan public retirement and healthcare plans.

ADMINISTRATION

McKnight v. General Retirement System of the City of Detroit

Michigan Court of Appeals – Decided November 16, 2010 2010 Mich. App. LEXIS 2165

A member of the Retirement System named his wife as his primary survivor beneficiary and his mother as his contingent survivor beneficiary on membership enrollment forms. The member subsequently divorced his wife and died without amending his beneficiary forms. When his mother sought payment of his death benefit and annuity, the Retirement System indicated that it would pay the benefits to the deceased member’s estate. The mother sued the Retirement System seeking a declaratory judgment for payment of the annuity and death benefit. The Court of Appeals awarded the mother payment of benefits as the member’s only eligible beneficiary who was living at the time of his death. The Court reasoned that the mother qualified in line of succession because the member’s former wife no longer met the qualification requirements as a result of the divorce.

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Legal Report – Spring 2010

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2010 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions of interest to Michigan public retirement and healthcare plans.

ADMINISTRATION

Brooks, et al. v. Detroit Police and Fire Retirement System, et al.

Michigan Court of Appeals – Decided April 20, 2010 2010 Mich. App. LEXIS 695

A member was terminated from employment and began application for early retirement benefits. He was reinstated to employment before his application was completed, and pursuant to Plan provisions he was treated as a new hire upon his reinstatement. The member sued the City and the Retirement System requesting that the Retirement System allow him to begin receiving his early retirement benefits. The Court of Appeals dismissed the member’s case against the Retirement System and determined that because the member did not complete the process of applying for his pension, the Retirement System could neither grant nor deny his benefits. Therefore, the member did not suffer any injury from the Retirement System.

Conkright v. Frommert, et al.

U.S. Supreme Court – Decided April 21, 2010 2010 U.S. LEXIS 3479

A group of rehired retirees brought an action against their former employer regarding the calculation of lump sum payments the retirees had received before they were rehired. The Supreme Court held that when a trust instrument gives the trustee authority to construe and interpret plan provisions, the trustee’s interpretation will not be disturbed if reasonable. A deferential standard of review applies to a Plan Administrator’s interpretation of the plan even when the Administrator’s prior interpretation of plan provisions was found to violate applicable law.

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Legal Report – Spring 2009

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2009 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions of interest to Michigan public retirement and healthcare plans.

ADMINISTRATION

Bandeen v. Public School Employees Retirement Board

Michigan Court of Appeals – Decided February 24, 2009 2009 Mich. App. LEXIS 376

The Court agreed with the Public School Retirement Board’s denial of the plaintiff’s application to purchase maternity/child-rearing service credit for the period of time from when she stopped substitute teaching to when she began teaching full-time again on the grounds that a “day-to-day” substitute teacher could not be classified as having a temporary absence with the intent to return because there was no guaranteed position upon return to employment.

Cole, et al. v. ArvinMeritor, Inc., et al.

6th Circuit Court of Appeals – Decided December 16, 2008 Case No. 06-2224

The Court found that language in the applicable collective bargaining agreements (“CBAs”) that stated that health care benefits shall be provided at the time of retirement and “shall be continued thereafter” was an unambiguous, enforceable contractual promise of lifetime retiree health care benefits. In considering the duration of retiree health care benefits under an ERISA plan, the Court noted that benefits under such plans only vest if the parties so intended when they executed the applicable CBAs.

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Legal Report – Spring 2008

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2008 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions of interest to Michigan public retirement and healthcare plans.

ADMINISTRATION Atkins v. Michigan Public School Employees’ Retirement System

Michigan Court of Appeals – Decided: April 22, 2008

The Michigan Court of Appeals determined that the Pension Board’s denial of retirement benefits under the Plan’s “60 with 5″ option was not based on substantial, competent, and material evidence. Therefore, the Court found that a correction of the individual’s termination date was warranted and the individual was eligible for retirement benefits.

Mona Shores Board of Education, et al. v. Mona Shores Teachers Education Association

Michigan Supreme Court Order – Decided: March 28, 2008

The Michigan Supreme Court found that the School Board had standing to seek declaratory relief concerning the validity of early retirement provisions of a collective bargaining agreement. However, a party cannot seek relief from the courts until it has first exhausted all of its remedies under the collective bargaining agreement.

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Legal Report – Spring 2007

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2007 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions regarding Michigan public retirement and healthcare plans.

ADMINISTRATION

Board of Trustees of the Detroit General Retirement System, et al. v. City of Detroit, et al.

Michigan Court of Appeals – Decided: July 25, 2006 2006 Mich. App. Lexis 2294

The Court of Appeals determined that the Public Employee Retirement System Investment Act (Act 314) authorizes the Retirement Boards to retain all services necessary for the conduct of the affairs of the Retirement Systems. The Court held that Act 314 grants the Retirement Boards, as investment fiduciaries, the option to become autonomous employers and hire, direct and fix the compensation of their employees. The Court found that the Retirement System’s Executive Secretary shall have the exclusive right to direct pension employees in the performance of their duties on behalf of the Retirement Systems. The Court noted that in light of the relationship between the Retirement System and the City, the City cannot have control over the appointment and management of the Executive Secretary responsible for managing the affairs of the Retirement Systems and that Act 314 supercedes conflicting City Charter provisions.

Retired Detroit Police and Fire Fighters Ass’n v. Mayor of Detroit, et al.

Michigan Court of Appeals – Decided: February 6, 2007 2007 Mich. App. Lexis 286

The Court of Appeals found that the composition of the Board of Trustees is a matter subject to collective bargaining agreement under the Public Employee Relations Act (PERA), and that a Charter provision enacted pursuant to the Home Rule Cities Act to add a retiree representative to the Retirement Board cannot contravene the obligations imposed by the PERA. Therefore, the City could not unilaterally implement or be compelled to amend the Retirement System to add a retiree trustee position on the Board.

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Legal Report – Spring 2006

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2006 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions regarding Michigan public retirement and healthcare plans.

DISABILITY

Spencer v. State Employees Retirement Board

Michigan Court of Appeals – Decided: October 13, 2005. 2005 Mich. App. Lexis 2503

The Appellate Court upheld the State Employees Retirement Board’s decision to deny a correction officer’s application for non-duty disability retirement benefits. The Court reversed the trial court’s decision because the trial court was not merely reviewing the Board’s decision to determine if it was supported by substantial evidence in the record, but was improperly weighing the medical evidence and the credibility of the medical witnesses.

RETIREE MEDICAL

Studier, et al. v. Michigan Public School Employees’ Retirement Board, et al.

Michigan Supreme Court – Decided: June 28, 2005. 272 Mich. 642

The Michigan Supreme Court decided that an increase in the co-pays and deductibles of a health care plan provided to public school retirees did not violate the state constitution’s protection (MI Const 1963, Art. 9, Sect. 24) against the diminishment or impairment of “accrued financial benefits”. The Court found that the term “accrued financial benefits” refers to pension benefits, not health care benefits, and that the statute creating the health care benefits did not create a contractual right in those benefits such that alteration of those benefits would violate the federal and state constitutional prohibitions (MI Const 1963, Art 1, Sect. 10 and US Const, Art I, Sect. 10) against impairment of a contractual obligation.

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Legal Report – Spring 2005

MAPERS

RECENT LEGAL ISSUES AND DECISIONS

SPRING 2005 CONFERENCE

This summary is presented to provide a general reference to recent legal decisions regarding Michigan public employee retirement systems:

DISABILITY

Galuszka v State Employees’ Retirement System

Court of Appeals – Decided November 23, 2004. 265 Mich. App. 34

The Court of Appeals upheld the decision of the State Employees’ Retirement Board to deny plaintiff’s duty disability benefits and held that the circuit court was limited to determining whether the Board’s decision was contrary to law, supported by competent, material and substantial evidence on the whole record, arbitrary or capricious, or otherwise affected by a substantial and material error of law.

Zarka v State Employees’ Retirement System

Court of Appeals – Decided December 30, 2003. 2003 Mich. App. LEXIS 3442

The Court reversed the decision of the trial court, thereby upholding the decision of the Retirement System to deny the plaintiff’s application for duty disability retirement benefits because his condition preexisted his employment and he could not satisfy the proximate cause element for disability retirement.

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