Judge Rejects 403(b) 'Kickback' Suit
September 8, 2009 (PLANSPONSOR.com) - A federal
judge has dismissed a lawsuit alleging a New York state
teachers group breached its fiduciary duty by paying
"kickbacks" to ING Life Insurance and Annuity Co.
U.S. District Judge Naomi Reice Buchwald of the
U.S. District Court for the Southern District of New York
said she had no jurisdiction over the dispute because the
plan involved is a 403(b) program set up by a New York
school district. As such, she said, the plan is not
covered by the Employee Retirement Income Security Act
(ERISA).
Buchwald found that the Opportunity Plus
Program (OPP) 403(b) plan was sponsored by a school
district, a government employer. She rejected
plaintiffs' contention that it was actually sponsored
by the New York State United Teachers (NYSUT), an
employee organization made up of approximately 575,000
people who work in, or are retired from, New York's
schools, colleges, and health care facilities.
According to the court opinion, the lawsuit was
filed in 2007 by two teachers from the Long Beach School
District in New York state, both of whom were members of
the NYSUT and both of whom participated in the OPP. The
teachers alleged that ING and trustees of the NYSUT had
breached their ERISA fiduciary duties because NYSUT had
"endorsed" the OPP in exchange for
"millions of dollars in kickback payments" from
ING (see
NY Plan Sued for Fiduciary Breach over ING Fee Setup
).
In response to the defendants' request that the
lawsuit be thrown out, the teachers argued that the court
could not determine whether the plan was a government
plan without first looking to a regulatory safe harbor
provision created by the Department of Labor. This
regulation permits an employer to escape ERISA liability
if it limits its involvement in an employee pension plan
to a set of activities listed in the safe harbor
regulation.
The court said that the Section 2510.3-2(f) safe
harbor applies only to the plans of private
employers.
The court said that if it were to hold that the
school district did not "establish or maintain"
the Section 403(b) plan, then this would call into
question the validity of the tax benefits the teachers
had received over the years by participating in the
OPP.
The ruling is available
here
.
Fred Schneyer
editors@plansponsor.com