Judge Rejects 403(b) 'Kickback' Suit

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 .