District suffers in investment collapse

ContraCostaTimes.com 01/20/2006 District suffers in investment collapse

This will be an interesting case as I am pretty sure the employees and their union will end up in a court battle with the district. The issue will be what responsibilities the school district has to the employees regarding their payroll deductions to retirement plans.

What is unclear is what actually transpired. It appears Plan Compliance Group was on the "approved vendor list" (hint: employees need to request a copy of this list to see how it is titled....approved indicates some level of responsibility) of the district and if this is true it means they signed a hold harmless agreement with the district, this agreement holds the district harmless should fraud happen and makes the company responsible. However, the district also has the responsibility to ensure that the money is actually going to an account that is allowed by the IRS. The question is what agreements did the district have with PCG and when was the last time those agreements were updated. The employees need to find their statements and figure out whether their money was ever really invested in a 403(b). The district liability in this is not clear, but the questions will be 1) Is the district responsible for verifying if a plan is actually a 403(b) approved plan, 2) If so, what steps, if any were taken by the district to verify this, 3) was Plan Compliance Group the actual investment provider or were they simply a common remitter, i.e. a firm that forwards money on to another vendor - if so, the district may actually have some liability if it can be proved that PCG was an agent (via the hold harmless agmt) of the district. This will be a very interesting case to watch, though ultimately the new 403(b) regulations require the district to take responsibility and in the future the district will likely be on the hook for occurences such as this. This is why districts are going to have to find a good system for handling their 403(b) plans.

Scott Dauenhauer, CFP, MSFP