WASHINGTON - Participants would be allowed to sue for a fiduciary's accrued benefit if the fiduciary is found guilty of breaching duties under a provision in the Retirement Security Act sponsored by Sen. Tom Daschle, D-S.D.
The provision would waive what's called the anti-alienation provision in the 1974 Employee Retirement Income Security Act. It would reverse current law, and would allow a fiduciary's accrued benefit to be used as a way to pay a judgment to restore benefits. Fiduciaries could be liable in both civil and criminal cases if convicted of wrongdoing.
Reaction to the proposal was negative.
"This is preposterous," said Ian Lanoff, principal with Groom and Nordberg, Washington, and former Department of Labor ERISA administrator. "There's no evidence that the current remedies provided in ERISA aren't working."
"This goes too far, and I think I'm pretty strong on enforcement," Mr. Lanoff added.
Ann Combs, principal at the Washington Resource Group, William M. Mercer Inc., Washington, found the provision troubling because it could affect both civil and criminal cases.
Ms. Combs speculated that trustees' plan benefits could be jeopardized if certain prudent investments eventually turn sour.
"We don't want to discourage people from becoming fiduciaries," Ms. Combs said.
Ms. Combs also pointed out that pension plans are voluntary, and this provision might make small business owners - where many fiduciary violations are found - think twice about setting up a plan for their employees.
Currently, federal pension law specifies benefits cannot be "alienated" or separated from a participant; benefits are to be paid solely to the beneficiary, and not to creditors. There are some exceptions, such as when a spouse seeks benefits during a divorce.
For the most part, creditors and other people seeking to squeeze money out of fiduciaries can't touch pension assets, said Peter Schmidt, partner and head of the benefits practice at Arnold & Porter, Washington.
"It seems this legislation is trying to reverse the line of cases that have said you couldn't .*.*. divest a person of their assets once they're vested," said Neil Grossman, vice president, legal and regulatory affairs at the Association of Private Pension and Welfare Plans, Washington.
Sources agreed Sen. Daschle's proposal is an attempt to reverse the January 1990 U.S. Supreme Court decision in Guidry vs. Sheet Metal Workers National Pension Fund and other similar lower-court cases.
In Guidry, the high court said the anti-alienation clause in ERISA prevents participants from dipping into a local union officer's pension benefits, even after he was convicted of embezzling more than $377,000 from the union.
The anti-alienation clause in ERISA "reflects a considered congressional policy choice, a decision to safeguard a stream of income for pensioners (and their dependents, who may be, and perhaps usually are, blameless), even if that decision prevents others from securing relief for the wrongs done them," the high court said at the time.
Meanwhile, most experts don't feel the wording of the provision will remain in the bill. Others say the provision would affect only a very small number of fiduciaries, where questionable practices arise.
Mr. Grossman said this isn't high on APPWP's priority list because fiduciary breaches are not prevalent among his group's membership.
"It doesn't get our companies stirred up," Mr. Grossman said. "It's not a big issue for single-employer plans."