North Dakota Public North Dakota Public Employees Retirement Employees Retirement System Board Member System Board Member

ResponsibilitiesResponsibilities

What is Your Role?What is Your Role?(NDCC § 54-52-03 & 54-52-04)(NDCC § 54-52-03 & 54-52-04)

“A state agency is hereby created to constitute the governing authority of the system to consist of a board of seven persons known as the retirement board.”“The board shall adopt rules necessary to implement this chapter, and to manage the system, subject to the limitations of this chapter.

What is a Trustee?What is a Trustee?

Trustee: “One who, having legal title to property, holds it Trustee: “One who, having legal title to property, holds it in trust for the benefit of another and owes a in trust for the benefit of another and owes a fiduciary fiduciary dutyduty to that beneficiary.” to that beneficiary.”

Fiduciary Duty: A duty of utmost good faith, trust, Fiduciary Duty: A duty of utmost good faith, trust, confidence, and candor owed by a fiduciary to the confidence, and candor owed by a fiduciary to the beneficiary.beneficiary.

Black’s Law Dictionary 7Black’s Law Dictionary 7thth ed. 1999 ed. 1999..But See Also NDCC Title 59 which governs Trusts, Uses, But See Also NDCC Title 59 which governs Trusts, Uses,

and Powersand Powers

What guides your actions as a What guides your actions as a trustee?trustee?

Statute: North Dakota Century CodeStatute: North Dakota Century Code

Rule: Administrative RulesRule: Administrative Rules

Policy: As adopted by the BoardPolicy: As adopted by the Board

Case-law/ Legal Treatises Case-law/ Legal Treatises (Ex: Restatement 3(Ex: Restatement 3rdrd of Trusts) of Trusts)

Your Conscience Your Conscience (Miller’s Mirror Test)(Miller’s Mirror Test)

Fiduciary DutiesFiduciary Duties

• Duty of LoyaltyDuty of Loyalty• Duty of ImpartialityDuty of Impartiality• Duty of PrudenceDuty of Prudence• Duty of AdministrationDuty of Administration• Duty of SkillDuty of Skill• Duty of DelegationDuty of Delegation• Prudent Investor RulePrudent Investor Rule

Duty of LoyaltyDuty of Loyalty

A Trustee must administer a trust solely in A Trustee must administer a trust solely in the interests of the beneficiaries.the interests of the beneficiaries.– Exclusive Benefit RuleExclusive Benefit Rule– Avoid conflicts Avoid conflicts – Practice Fair dealing and candor with Practice Fair dealing and candor with

beneficiary.beneficiary.

NDCC § 21-10-07, 54-52-14.3, 59-16-02;NDCC § 21-10-07, 54-52-14.3, 59-16-02;

Restatement 3Restatement 3rdrd of Trusts § 78 of Trusts § 78

Duty of ImpartialityDuty of Impartiality

If a trust has two or more beneficiaries, the trustee shall If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing, and distributing act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries' the trust property, giving due regard to the beneficiaries' respective interests.respective interests.

Includes responsibility for Income Productivity. The Includes responsibility for Income Productivity. The trustee's duty of impartiality includes a duty to so invest trustee's duty of impartiality includes a duty to so invest and administer the trust, or to so account for principal and administer the trust, or to so account for principal and income, that the trust estate will produce income and income, that the trust estate will produce income that is reasonably appropriate to the purposes of the that is reasonably appropriate to the purposes of the trust and to the diverse present and future interests of its trust and to the diverse present and future interests of its beneficiaries.beneficiaries.

NDCC § 59-16-03; Restatement 3NDCC § 59-16-03; Restatement 3rdrd of Trusts § 79 of Trusts § 79

Duty of PrudenceDuty of Prudence

A trustee shall administer the trust as a prudent A trustee shall administer the trust as a prudent person would by considering the purposes, person would by considering the purposes, terms, distributional requirements, and other terms, distributional requirements, and other circumstances of the trust. In satisfying this circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable standard, the trustee shall exercise reasonable care, skill, and caution.care, skill, and caution.

May include Duty of Skill.May include Duty of Skill.

NDCC § 59-16-04; Restatement 3NDCC § 59-16-04; Restatement 3rdrd of Trusts § 77 of Trusts § 77

Duty of AdministrationDuty of Administration

In administering a trust, the trustee may In administering a trust, the trustee may incur only costs that are reasonable in incur only costs that are reasonable in relation to the trust property, the purposes relation to the trust property, the purposes of the trust, and the skills of the trustee.of the trust, and the skills of the trustee.

NDCC § 59-16-05; See also § 21-10-06.2;NDCC § 59-16-05; See also § 21-10-06.2;

Restatement 3Restatement 3rdrd of Trusts § 76 & 88 of Trusts § 76 & 88

Duty of SkillDuty of Skill

A trustee who has special skills or A trustee who has special skills or expertise, or is named trustee in reliance expertise, or is named trustee in reliance upon the trustee's representation that the upon the trustee's representation that the trustee has special skills or expertise, shall trustee has special skills or expertise, shall use those special skills or expertise.use those special skills or expertise.

May also be considered part of the Duty of May also be considered part of the Duty of Prudence.Prudence.

NDCC § 59-16-06; Restatement 3NDCC § 59-16-06; Restatement 3rdrd of Trusts § 77 of Trusts § 77

Duty of DelegationDuty of Delegation

Ok to delegate if appropriate under the circumstances.Ok to delegate if appropriate under the circumstances.

Be prudent in selecting agent.Be prudent in selecting agent.

Must establish scope of delegation.Must establish scope of delegation.

Monitor.Monitor.

A trustee compliant with the duty of delegation is not A trustee compliant with the duty of delegation is not liable to the beneficiaries or trust for an action of the liable to the beneficiaries or trust for an action of the agent to whom the function was delegated.agent to whom the function was delegated.

NDCC § 59-16-07; See also § 21-10-02NDCC § 59-16-07; See also § 21-10-02

Restatement 3Restatement 3rdrd of Trusts § 80 of Trusts § 80

Prudent Investor RulePrudent Investor Rule

Exercise all Fiduciary Duties in relation to Exercise all Fiduciary Duties in relation to making investment decisions.making investment decisions.– Exclusive Benefit RuleExclusive Benefit Rule– Ex: Social InvestingEx: Social Investing

NDCC § 59-17-01 & 02; See also § 21-10-07NDCC § 59-17-01 & 02; See also § 21-10-07

Restatement 3Restatement 3rdrd of Trusts § 90 of Trusts § 90

Specific Application of Fiduciary Specific Application of Fiduciary DutiesDuties

Administration of the PlanAdministration of the Plan

NDCC § 54-52-04NDCC § 54-52-04

Maintaining the Confidentiality of RecordsMaintaining the Confidentiality of Records

NDCC § 54-52-26NDCC § 54-52-26

Monitoring and Suggesting Improvements Monitoring and Suggesting Improvements to the Plan.to the Plan.

NDCC § 54-52-23NDCC § 54-52-23

Conflicts of InterestConflicts of Interest

Obvious: Direct, Substantial, Personal, Obvious: Direct, Substantial, Personal, Pecuniary.Pecuniary.

Less Obvious: Favors, Gifts, Special Less Obvious: Favors, Gifts, Special Treatment.Treatment.

The appearance of impropriety.The appearance of impropriety.

Refer to Code of Ethical Responsibility for Refer to Code of Ethical Responsibility for QuestionsQuestions

Code of Ethical Responsibility: Board Code of Ethical Responsibility: Board Policy 7. d. Prohibited TransactionsPolicy 7. d. Prohibited Transactions

Prohibited transactions for fiduciaries generally fall into two areas: those involving self-dealing and those involving a party-in-interest. Self-dealing refers to the fiduciary’s use of plan assets for personal gain, engaging transactions on behalf of parties whose interests are adverse to the plan, or receiving personal consideration in connection with any planned transaction. A party-in-interest includes a fiduciary, counsel, or employee of the plan, anyone providing services to the plan, any employer or employee, organizations whose employees or members are covered by the plan and any of the number of other persons or entities that have a stated interest or relationship with a party-in-interest. Prohibited transactions between the plan and a party-in-interest include the sale, loan, exchange, or transfer of any plan assets.

Code of Ethical Responsibility:Code of Ethical Responsibility: Board Policy 6 Board Policy 6

Employees and Board members shall not accept any cash or gifts, special accommodations, favors, or the use of property or facilities of more than $50 from anyone with whom such person is doing, negotiating, or being solicited for business on behalf of NDPERS. However, employees or Board members may accept: occasional meals or beverages from a citizen or business representative in connection with official duties; meals or refreshments offered in connection with a conference or seminar; reimbursement for costs related to attending a conference or seminar; and promotional items of nominal value. Travel and lodging costs may be accepted only upon prior approval of the Board.

Code of Ethical Responsibility:Code of Ethical Responsibility: Board Policy 3 Board Policy 3

Conflicts of interest and the appearance of impropriety shall be avoided by NDPERS employees and Board members. Employees and Board members should not allow their family, social, or other relationships to influence their judgment in discharging their responsibilities. Employees and Board members should refrain from financial and business dealings that tend to reflect adversely on their impartiality or interfere with the proper performance of their duties. If a conflict of interest unavoidably arises, the employee or Board member shall immediately disclose the conflict to the NDPERS Board.

BreachBreach

Potential ramifications for a breach of Potential ramifications for a breach of fiduciary duties and code of conduct.fiduciary duties and code of conduct.– Board reprimandBoard reprimand– Loss of PositionLoss of Position– Civil LiabilityCivil Liability– Criminal LiabilityCriminal Liability

Breach of Duty of Loyalty:Breach of Duty of Loyalty:Stapleton v. PERA, 2013 WL 3943272 (Colo.App.)Stapleton v. PERA, 2013 WL 3943272 (Colo.App.)

State Treasurer, as member of PERA Board, brought State Treasurer, as member of PERA Board, brought action against co-trustees for breach of fiduciary duty by action against co-trustees for breach of fiduciary duty by denying Treasurer unfettered access to PERA records. denying Treasurer unfettered access to PERA records.

Remaining trustees counterclaimed alleging Treasurer Remaining trustees counterclaimed alleging Treasurer was not entitled to requested records because there was was not entitled to requested records because there was no nexus between request and Treasurer’s fiduciary no nexus between request and Treasurer’s fiduciary duties to PERA.duties to PERA.

Held: State Treasurer was not entitled to unfettered Held: State Treasurer was not entitled to unfettered access to PERA records.access to PERA records.

Mistake AvoidanceMistake Avoidance

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