Any thoughts on the duty of care which an employer must exercise when 457 plan uses a custodial account and/or annuity contracts?

The employer is not a trustee and therefore does not have fiduciary responsibilities but does that get them completely off the hook for anything that might happen?

The plan is entirely voluntary and all investment decisions are made by the employee. What if the employer picks a bad company to administer the program and there are excessive fees charged or other problems. The employer is not making the investment decisions but it picked the companies with which employee must use if he elects to participate.

Start by checking applicable state statutes, including the enabling statute that empowers the state or local government employer to maintain the plan, the procurement code (if any), other statutes on the conduct of government officials, and sovereign, governmental, and public officer immunity statutes. Then look for Attorney General opinions and court decisions that refer to those statutes.

I've worked with the state laws of most of the 50 states (but not Tennessee), and so far I haven't yet found a State that puts liability on a local government for a mere fiduciary breach. A few states impose one or more fiduciary duties, but no liability to go with it. Good luck in your research.


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I believe that California does declare a 457 plan to be a "pension trust" and thereby subjects it to the plenary authority and fiduciary responsibility of Article 16, Section 17 of the CA Constitution.

Ralph:

I take it that you are assuming that the Section 457 plan is sponsored by a (state) governmental entity. Otherwise, California law would be presumably preempted by ERISA.

Kirk, thank you your for your correction. Since I seldom work with not for profits or other ERISA eligible 457's, I had made the assumption that the plan was governmental. My answer would not apply to non-governmental plans.