North Dakota Public Employees Retirement System Board Member Responsibilities

What is Your Role? (NDCC § & ) “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? Trustee: “One who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary.” Fiduciary Duty: A duty of utmost good faith, trust, confidence, and candor owed by a fiduciary to the beneficiary. Black’s Law Dictionary 7 th ed But See Also NDCC Title 59 which governs Trusts, Uses, and Powers

What guides your actions as a trustee? Statute: North Dakota Century Code Rule: Administrative Rules Policy: As adopted by the Board Case-law/ Legal Treatises (Ex: Restatement 3 rd of Trusts) Your Conscience (Miller’s Mirror Test)

Fiduciary Duties Duty of Loyalty Duty of Loyalty Duty of Impartiality Duty of Impartiality Duty of Prudence Duty of Prudence Duty of Administration Duty of Administration Duty of Skill Duty of Skill Duty of Delegation Duty of Delegation Prudent Investor Rule Prudent Investor Rule

Duty of Loyalty A Trustee must administer a trust solely in the interests of the beneficiaries. –Exclusive Benefit Rule –Avoid conflicts –Practice Fair dealing and candor with beneficiary. NDCC § , , ; Restatement 3 rd of Trusts § 78

Duty of Impartiality If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries' respective interests. Includes responsibility for Income Productivity. The trustee's duty of impartiality includes a duty to so invest and administer the trust, or to so account for principal and income, that the trust estate will produce income that is reasonably appropriate to the purposes of the trust and to the diverse present and future interests of its beneficiaries. NDCC § ; Restatement 3 rd of Trusts § 79

Duty of Prudence A trustee shall administer the trust as a prudent person would by considering the purposes, terms, distributional requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution. May include Duty of Skill. NDCC § ; Restatement 3 rd of Trusts § 77

Duty of Administration In administering a trust, the trustee may incur only costs that are reasonable in relation to the trust property, the purposes of the trust, and the skills of the trustee. NDCC § ; See also § ; Restatement 3 rd of Trusts § 76 & 88

Duty of Skill A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, shall use those special skills or expertise. May also be considered part of the Duty of Prudence. NDCC § ; Restatement 3 rd of Trusts § 77

Duty of Delegation Ok to delegate if appropriate under the circumstances. Be prudent in selecting agent. Must establish scope of delegation. Monitor. A trustee compliant with the duty of delegation is not liable to the beneficiaries or trust for an action of the agent to whom the function was delegated. NDCC § ; See also § Restatement 3 rd of Trusts § 80

Prudent Investor Rule Exercise all Fiduciary Duties in relation to making investment decisions. –Exclusive Benefit Rule –Ex: Social Investing NDCC § & 02; See also § Restatement 3 rd of Trusts § 90

Specific Application of Fiduciary Duties Administration of the Plan NDCC § Maintaining the Confidentiality of Records NDCC § Monitoring and Suggesting Improvements to the Plan. NDCC §

Conflicts of Interest Obvious: Direct, Substantial, Personal, Pecuniary. Less Obvious: Favors, Gifts, Special Treatment. The appearance of impropriety. Refer to Code of Ethical Responsibility for Questions

Code of Ethical Responsibility: Board Policy 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: 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: 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.

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

Breach of Duty of Loyalty: Stapleton v. PERA, 2013 WL (Colo.App.) State Treasurer, as member of PERA Board, brought action against co-trustees for breach of fiduciary duty by denying Treasurer unfettered access to PERA records. Remaining trustees counterclaimed alleging Treasurer was not entitled to requested records because there was no nexus between request and Treasurer’s fiduciary duties to PERA. Held: State Treasurer was not entitled to unfettered access to PERA records.

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