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by Cynthia L. Moore
Washington Counsel
National Council on Teacher Retirement

On July 31, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved the Uniform Management of Public Employee Retirement Systems Act (UMPERSA or Act) as part of their Annual Meeting in Sacramento. As discussed in previous reports, the Act would, among other things, require independent state and local government employee retirement systems, uniform reporting rules, and personal liability if retirement system fiduciaries breach their duties. A final copy of the Act, which was drafted by a committee made up of commissioners from around the country, is available from Cindie Moore 703-243-3494 or Bruce Hineman, 512-335-0055.

UMPERSA will now be sent to the state legislatures for their consideration. Because it has been designated "uniform," NCCUSL will urge the legislatures to adopt it in its entirety. The legislatures are free, however, to decide whether or not to enact it. Even if they do enact it, they might not adopt the entire version (if history is any guide) despite its designation as uniform.

Several issues attracted significant debate during consideration, but no substantive changes were made. A summary of the key issues follows.

Definition of Fiduciary (Section 2, Paragraph 11). Under the Act, a fiduciary is "a person who exercises any discretionary authority to manage a retirement system; exercises any authority to invest or manage assets of a system; provides investment advice for a fee or other direct or indirect compensation with respect to assets of a system or has any authority or responsibility to do so; or is a trustee or a member of a trustee board." During debate, a suggestion was made to expand the definition so as to cover a larger universe of individuals who provide retirement boards with professional advice, such as attorneys and actuaries. Those who opposed the suggestion pointed out that such professionals are already covered under existing state laws that govern contracts and torts. After extensive discussion, no change was made.

Standard of Liability (previously Section 10(a); now Section 11(a)). UMPERSA would require fiduciaries to be held personally liable for breaches of their duties. This broad standard would hold fiduciaries absolutely liable even if the act was negligent or if they had no knowledge of the act. The language is very similar to the standard that the Employee Retirement Income Security Act (ERISA) imposes on fiduciaries of private sector plans. A motion was made during debate to add "knowingly and willingly" in brackets to the standard. Under such wording, fiduciaries would be liable for acts in which they had some sort of intent, but not for negligence or for an act of which they had no knowledge. The motion was defeated and personal liability remains the standard of the Act.

Right of Fiduciaries to Insure Themselves (previously Section 10(c) and 10(d); now Section 11(c) and (d)). Related to the standard of liability is a provision that allows fiduciaries to insure themselves against liability or losses occurring because of a breach of duty under the Act. Subsection (c) permits a retirement system to insure itself against losses from fiduciary violations. Subsection (d) authorizes a fiduciary to insure against losses resulting from his/her breach if the insurance is purchased on his/her own behalf or by the state, a public employer, an employee representative, or his/her employer. During consideration, a change was made to the Act to make clear that the retirement system could also purchase insurance for fiduciaries.

Open or Public Meetings and Records (previously Section 11; now Section 12). Several changes were made. First, concern was raised about the operation of the section in those states in which the open or public meetings and records laws are in the constitution. To address the concern, the commissioners bracketed the section. (See footnote 2 about bracketing.) Second, UMPERSA would allow records to be kept confidential on an investment decision to the extent its disclosure would jeopardize the ability to implement it. The commissioners added a phrase that makes clear that the records may remain confidential only so long as the disclosure would jeopardize the implementation of the decision. Thus, once the jeopardy has passed, the records must be disclosed.

Enforcement of Act (previously Section 18; now Sections 19 and 20). Prior to the meeting, the drafting committee had included a provision in UMPERSA that allowed a lawsuit brought under the Act to be delayed while the individual who brought the suit pursued any administrative remedies (as opposed to remedies through the courts) available under state law. During consideration, some commissioners were unclear as to what administrative remedies would apply. As a result of the concern, the committee agreed to re-draft the section to delete the reference to the administrative remedies. The committee also redrafted the statute of limitation so as to extend the period during which an individual could bring a lawsuit. Under the prior draft, the period was one year. Under the re-draft, the statute of limitation would be whatever the period is under state law, or if no period is stated, three years. In addition, the statute of limitation is bracketed. The commissioners approved the changes in the re-draft.

Note--Certain Sections Renumbered: The commissioners divided Section 9 (previously "Application of Trustee and Fiduciary Duties") into two sections. The new Section 9 is now entitled "Special Application of Duties." The new Section 10 is called "Reviewing Compliance." The change is stylistic, not substantive. In addition to the foregoing, the conference made the statute of limitations a separate section. Previously, it was in the enforcement section. Again, the separation was not made to effect a substantive change, but rather stylistic; see, however, the text above regarding changes in substance made to the statute of limitation.

Future Uniform Law Efforts Affecting State and Local Plans. NCCUSL has authorized a study committee to look at such issues as whether portability, spousal benefits, vesting, and board composition would be appropriate subjects for uniform acts. It will be some time before the committee's conclusions are known. 8/5/97