Get Full Government Meeting Transcripts, Videos, & Alerts Forever!
Get email alerts on the Fiduciary Duties Training topic
No spam. Unsubscribe anytime.
Legal counsel briefs Federated trustees on fiduciary duties, emphasizing loyalty and prudence
Summary
Board legal counsel delivered an annual fiduciary training covering the duties of loyalty, prudence, diversification, exclusive benefit and following plan documents; the session stressed process documentation, delegation and monitoring to reduce legal risk.
San Jose Federated Retirement System legal counsel provided trustees an annual refresher on fiduciary duties Jan. 16, focusing on the twin obligations of loyalty and prudence and practical steps to document deliberations and monitor delegated responsibilities.
Counsel Chen reviewed five core fiduciary duties that apply to public retirement boards in California: the duty of loyalty, the exclusive-benefit rule, the duty of prudence, the duty to diversify and the duty to follow the plan document. Counsel quoted Article XVI, Section 17 of the California Constitution as the constitutional basis trustees must follow and said those duties “take precedence” when the board administers the plan.
Chen emphasized the duty of loyalty as the board’s “North Star” and said trustees must prioritize plan members and beneficiaries when acting. Counsel explained trustees are not partisan representatives while seated on the board: “once you become a trustee, you put your trustee hat on,” and must set aside appointing or prior interests when making board decisions.
On prudence, Chen said courts evaluate the board’s deliberative process rather than only outcomes: well-documented, reasoned decision-making with expert input is critical. He advised trustees to seek expert advice (actuaries, counsel, investment consultants), hold open public meetings that build a record, invite stakeholders and document alternatives considered. Chen noted that a thorough record helps protect the board if its discretionary choices are later litigated.
Counsel also discussed delegation: the board may delegate tasks it lacks expertise to perform, but fiduciary duties follow the delegation. Trustees must monitor delegates periodically and be prepared to adjust or reclaim authority if oversight shows problems.
Trustees asked about conflicts of interest and the appearance of conflicts at conferences and vendor meetings. Chen and trustees agreed that gathering information and meeting vendors is appropriate; what raises legal concern is placing a thumb on the scale for a vendor or voting on a contract in which a trustee has a personal financial interest. Chen recommended transparency, disclosure to counsel and recusal where appropriate.
The training included a case study (the O’Neil/Stanislaus case) showing how a board balanced competing interests among retirees, active employees and a shortfall in employer funding and documented its process to survive judicial review. Chen offered to provide additional case-law examples where courts found breaches if trustees wanted further study.
The board held a wide-ranging Q&A and thanked counsel for the refresher. Trustees asked for more case examples of adverse outcomes and for annual trainings to be made available to staff and possibly to police and fire boards.
