Fiduciary responsibilities; liability and penalties

5 U.S.C. § 8477

• Title: 5 — Government Organization and Employees
• Chapter: SUBCHAPTER VII—FEDERAL RETIREMENT THRIFT INVESTMENT MANAGEMENT SYSTEM

Text

(a) For the purposes of this section—
(1) the term "account" is not limited by the definition provided in section 8401(1);
(2) the term "adequate consideration" means—
(A) in the case of a security for which there is a generally recognized market—
(i) the price of the security prevailing on a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934; or
(ii) if the security is not traded on such a national securities exchange, a price not less favorable to the Thrift Savings Fund than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of any party in interest; and
(B) in the case of an asset other than a security for which there is a generally recognized market, the fair market value of the asset as determined in good faith by a fiduciary or fiduciaries in accordance with regulations prescribed by the Secretary of Labor;
(3) the term "fiduciary" means—
(A) a member of the Board;
(B) the Executive Director;
(C) any person who has or exercises discretionary authority or discretionary control over the management or disposition of the assets of the Thrift Savings Fund; and
(D) any person who, with respect to the Thrift Savings Fund, is described in section 3(21)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(21)(A)); and
(4) the term "party in interest" includes—
(A) any fiduciary;
(B) any counsel to a person who is a fiduciary, with respect to the actions of such person as a fiduciary;
(C) any participant;
(D) any person providing services to the Board and, with respect to the actions of the Executive Director as a fiduciary any person providing services to the Executive Director;
(E) a labor organization, the members of which are participants;
(F) a spouse, sibling, ancestor, lineal descendant, or spouse of a lineal descendant of a person described in subparagraph (A), (B), or (D);
(G) a corporation, partnership, or trust or estate of which, or in which, at least 50 percent of—
(i) the combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation;
(ii) the capital interest or profits interest of such partnership; or
(iii) the beneficial interest of such trust or estate,
is owned directly or indirectly, or held by a person described in subparagraph (A), (B), (D), or (E);
(H) an official (including a director) of, or an individual employed by, a person described in subparagraph (A), (B), (D), (E), or (G), or an individual having powers or responsibilities similar to those of such an official;
(I) a holder (directly or indirectly) of at least 10 percent of the shares in a person described in any subparagraph referred to in subparagraph (H); and
(J) a person who, directly or indirectly, is at least a 10 percent partner or joint venturer (measured in capital or profits) in a person described in any subparagraph referred to in subparagraph (H).
(b)(1) To the extent not inconsistent with the provisions of this chapter and the policies prescribed by the Board, a fiduciary shall discharge his responsibilities with respect to the Thrift Savings Fund or applicable portion thereof solely in the interest of the participants and beneficiaries and—
(A) for the exclusive purpose of—
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the Thrift Savings Fund or applicable portions thereof;
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent individual acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like objectives; and
(C) to the extent permitted by section 8438 of this title, by diversifying the investments of the Thrift Savings Fund or applicable portions thereof so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so.
(2) No fiduciary may maintain the indicia of ownership of any assets of the Thrift Savings Fund outside the jurisdiction of the district courts of the United States.
(c)(1) A fiduciary shall not permit the Thrift Savings Fund to engage in any of the following transactions, except in exchange for adequate consideration:
(A) A transfer of any assets of the Thrift Savings Fund to any person the fiduciary knows or should know to be a party in interest or the use of such assets by any such person.
(B) An acquisition of any property from or sale of any property to the Thrift Savings Fund by any person the fiduciary knows or should know to be a party in interest.
(C) A transfer or exchange of services between the Thrift Savings Fund and any person the fiduciary knows or should know to be a party in interest.
(2) Notwithstanding paragraph (1), a fiduciary with respect to the Thrift Savings Fund shall not—
(A) deal with any assets of the Thrift Savings Fund in his own interest or for his own account;
(B) act, in an individual capacity or any other capacity, in any transaction involving the Thrift Savings Fund on behalf of a party, or representing a party, whose interests are adverse to the interests of the Thrift Savings Fund or the interests of its participants or beneficiaries; or
(C) receive any consideration for his own personal account from any party dealing with sums credited to the Thrift Savings Fund in connection with a transaction involving assets of the Thrift Savings Fund.
(3)(A) The Secretary of Labor may, in accordance with procedures which the Secretary shall by regulation prescribe, grant a conditional or unconditional exemption of any fiduciary or transaction, or class of fiduciaries or transactions, from all or part of the restrictions imposed by paragraph (2).
(B) An exemption granted under this paragraph shall not relieve a fiduciary from any other applicable provision of this chapter.
(C) The Secretary of Labor may not grant an exemption under this paragraph unless he finds that such exemption is—
(i) administratively feasible;
(ii) in the interests of the Thrift Savings Fund and of its participants and beneficiaries; and
(iii) protective of the rights of participants and beneficiaries of such Fund.
(D) An exemption under this paragraph may not be granted unless—
(i) notice of the proposed exemption is published in the Federal Register;
(ii) interested persons are given an opportunity to present views; and
(iii) the Secretary of Labor affords an opportunity for a hearing and makes a determination on the record with respect to the respective requirements of clauses (i), (ii), and (iii) of subparagraph (C).
(E) Notwithstanding subparagraph (D), the Secretary of Labor may determine that an exemption granted for any class of fiduciaries or transactions under section 408(a) of the Employee Retirement Income Security Act of 1974 shall, upon publication of notice in the Federal Register under this subparagraph, constitute an exemption for purposes of the provisions of paragraph (2).
(d) This section does not prohibit any fiduciary from—
(1) receiving any benefit which the fiduciary is entitled to receive under this subchapter or subchapter III of this chapter as a participant or beneficiary;
(2) receiving any reasonable compensation authorized by this subchapter for services rendered, or for reimbursement of expenses properly and actually incurred, in the performance of the fiduciary's duties under this chapter; or
(3) serving as a fiduciary in addition to being an officer, employee, agent, or other representative of a party in interest.
(e)(1)(A) Any fiduciary that breaches the responsibilities, duties, and obligations set out in subsection (b) or violates subsection (c) shall be personally liable to the Thrift Savings Fund for any losses to such Fund resulting from each such breach or violation and to restore to such Fund any profits made by the fiduciary through use of assets of such Fund by the fiduciary, and shall be subject to such other equitable or remedial relief as a court considers appropriate, except as provided in paragraphs (3) and (4) of this subsection. A fiduciary may be removed for a breach referred to in the preceding sentence.
(B) The Secretary of Labor may assess a civil penalty against a party in interest with respect to each transaction which is engaged in by the party in interest and is prohibited by subsection (c). The amount of such penalty shall be equal to 5 percent of the amount involved in each such transaction (as defined in section 4975(f)(4) of the Internal Revenue Code of 1986) for each year or part thereof during which the prohibited transaction continues, except that, if the transaction is not corrected (in such manner as the Secretary of Labor shall prescribe by regulation consistent with section 4975(f)(5) of such Code) within 90 days after the date the Secretary of Labor transmits notice to the party in interest (or such longer period as the Secretary of Labor may permit), such penalty may be in an amount not more than 100 percent of the amount involved.
(C)(i) A fiduciary shall not be liable under subparagraph (A) with respect to a breach of fiduciary duty under subsection (b) committed before becoming a fiduciary or after ceasing to be a fiduciary.
(ii) A fiduciary shall not be liable under subparagraph (A), and no civil action may be brought against a fiduciary—
(I) for providing for the automatic enrollment of a participant in accordance with section 8432(b)(2)(A);
(II) for enrolling a participant or beneficiary in a default investment fund or option in accordance with section 8438(c)(2); or
(III) for allowing a participant or beneficiary to invest through the mutual fund window or for establishing restrictions applicable to participants' or beneficiaries' ability to invest through the mutual fund window.
(D) A fiduciary shall be jointly and severally liable under subparagraph (A) for a breach of fiduciary duty under subsection (b) by another fiduciary only if—
(i) the fiduciary participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is such a breach;
(ii) by the fiduciary's failure to comply with subsection (b) in the administration of the fiduciary's specific responsibilities which give rise to the fiduciary status, the fiduciary has enabled such other fiduciary to commit such a breach; or
(iii) the fiduciary has knowledge of a breach by such other fiduciary, unless the fiduciary makes reasonable efforts under the circumstances to remedy the breach.
(E) The Secretary of Labor shall prescribe, in regulations, procedures for allocating fiduciary responsibilities among fiduciaries, including investment managers. Any fiduciary who, pursuant to such procedures, allocates to a person or persons any fiduciary responsibility shall not be liable for an act or omission of such person or persons unless—
(i) such fiduciary violated subsection (b) with respect to the allocation, with respect to the implementation of the procedures prescribed by the Secretary of Labor (or the Board under section 114 of the Federal Employees' Retirement System Technical Corrections Act of 1986), or in continuing such allocation; or
(ii) such fiduciary would otherwise be liable in accordance with subparagraph (D).
(2) No civil action may be maintained against any fiduciary with respect to the responsibilities, liabilities, and penalties authorized or provided for in this section except in accordance with paragraphs (3) and (4).
(3) A civil action may be brought in the district courts of the United States—
(A) by the Secretary of Labor against any fiduciary other than a Member of the Board or the Executive Director of the Board—
(i) to determine and enforce a liability under paragraph (1)(A);
(ii) to collect any civil penalty under paragraph (1)(B);
(iii) to enjoin any act or practice which violates any provision of subsection (b) or (c);
(iv) to obtain any other appropriate equitable relief to redress a violation of any such provision; or
(v) to enjoin any act or practice which violates subsection (g)(2) or (h) of section 8472 of this title;
(B) by any participant, beneficiary, or fiduciary against any fiduciary—
(i) to enjoin any act or practice which violates any provision of subsection (b) or (c);
(ii) to obtain any other appropriate equitable relief to redress a violation of any such provision;
(iii) to enjoin any act or practice which violates subsection (g)(2) or (h) of section 8472 of this title; or
(C) by any participant or beneficiary—
(i) to recover benefits of such participant or beneficiary under the provisions of subchapter III of this chapter, to enforce any right of such participant or beneficiary under such provisions, or to clarify any such right to future benefits under such provisions; or
(ii) to enforce any claim otherwise cognizable under sections 1346(b) and 2671 through 2680 of title 28, provided that the remedy against the United States provided by sections 1346(b) and 2672 of title 28 for damages for injury or loss of property caused by the negligent or wrongful act or omission of any fiduciary while acting within the scope of his duties or employment shall be exclusive of any other civil action or proceeding by the participant or beneficiary for recovery of money by reason of the same subject matter against the fiduciary (or the estate of such fiduciary) whose act or omission gave rise to such action or proceeding, whether or not such action or proceeding is based on an alleged violation of subsection (b) or (c).
(4)(A) In all civil actions under paragraph (3)(A), attorneys appointed by the Secretary may represent the Secretary (except as provided in section 518(a) of title 28), however all such litigation shall be subject to the direction and control of the Attorney General.
(B) The Attorney General shall defend any civil action or proceeding brought in any court against any fiduciary referred to in paragraph (3)(C)(ii) (or the estate of such fiduciary) for any such injury. Any fiduciary against whom such a civil action or proceeding is brought shall deliver, within such time after date of service or knowledge of service as determined by the Attorney General, all process served upon such fiduciary (or an attested copy thereof) to the Executive Director of the Board, who shall promptly furnish copies of the pleading and process to the Attorney General and the United States Attorney for the district wherein the action or proceeding is brought.
(C) Upon certification by the Attorney General that a fiduciary described in paragraph (3)(C)(ii) was acting in the scope of such fiduciary's duties or employment as a fiduciary at the time of the occurrence or omission out of which the action arose, any such civil action or proceeding commenced in a State court shall be—
(i) removed without bond at any time before trial by the Attorney General to the district court of the United States for the district and division in which it is pending; and
(ii) deemed a tort action brought against the United States under the provisions of title 28 and all references thereto.
(D) The Attorney General may compromise or settle any claim asserted in such civil action or proceeding in the manner provided in section 2677 of title 28, and with the same effect. To the extent section 2672 of title 28 provides that persons other than the Attorney General or his designee may compromise and settle claims, and that payment of such claims may be made from agency appropriations, such provisions shall not apply to claims based upon an alleged violation of subsection (b) or (c).
(E) For the purposes of paragraph (3)(C)(ii) the provisions of sections 2680(h) of title 28 shall not apply to any claim based upon an alleged violation of subsection (b) or (c).
(F) Notwithstanding sections 1346(b) and 2671 through 2680 of title 28, whenever an award, compromise, or settlement is made under such sections upon any claim based upon an alleged violation of subsection (b) or (c), payment of such award, compromise, or settlement shall be made to the appropriate account within the Thrift Savings Fund, or where there is no such appropriate account, to the participant or beneficiary bringing the claim.
(G) For purposes of paragraph (3)(C)(ii), fiduciary includes only the Members of the Board and the Board's Executive Director.
(5) Any relief awarded against a Member of the Board or the Executive Director of the Board in a civil action authorized by paragraph (3) may not include any monetary damages or any other recovery of money.
(6) An action may not be commenced under paragraph (3)(A) or (B) with respect to a fiduciary's breach of any responsibility, duty, or obligation under subsection (b) or a violation of subsection (c) after the earlier of—
(A) 6 years after (i) the date of the last action which constituted a part of the breach or violation, or (ii) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation; or
(B) 3 years after the earliest date on which the plaintiff had actual knowledge of the breach or violation, except that, in the case of fraud or concealment, such action may be commenced not later than 6 years after the date of discovery of such breach or violation.
(7)(A) The district courts of the United States shall have exclusive jurisdiction of civil actions under this subsection.
(B) An action under this subsection may be brought in the District Court of the United States for the District of Columbia or a district court of the United States in the district where the breach alleged in the complaint or petition filed in the action took place or in the district where a defendant resides or may be found. Process may be served in any other district where a defendant resides or may be found.
(8)(A) A copy of the complaint or petition filed in any action brought under this subsection (other than by the Secretary of Labor) shall be served on the Executive Director, the Secretary of Labor, and the Secretary of the Treasury by certified mail.
(B) Any officer referred to in subparagraph (A) of this paragraph shall have the right in his discretion to intervene in any action. If the Secretary of Labor brings an action under paragraph (2) of this subsection on behalf of a participant or beneficiary, he shall notify the Executive Director and the Secretary of the Treasury.
(f) The Secretary of Labor may prescribe regulations to carry out this section.
(g)(1) The Secretary of Labor shall establish a program to carry out audits to determine the level of compliance with the requirements of this section relating to fiduciary responsibilities and prohibited activities of fiduciaries.
(2) An audit under this subsection may be conducted by the Secretary of Labor, by contract with a qualified non-governmental organization, or in cooperation with the Comptroller General of the United States, as the Secretary considers appropriate.

History

(Added Pub. L. 99–335, title I, §101(a), June 6, 1986, 100 Stat. 582; amended Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095; Pub. L. 99–556, title I, §§112, 114(b), Oct. 27, 1986, 100 Stat. 3133; Pub. L. 100–238, title I, §133(a), (c), Jan. 8, 1988, 101 Stat. 1760, 1762; Pub. L. 100–366, §3(a), July 13, 1988, 102 Stat. 826; Pub. L. 101–335, §8, July 17, 1990, 104 Stat. 325; Pub. L. 111–31, div. B, title I, §106(b), June 22, 2009, 123 Stat. 1855; Pub. L. 113–255, §3, Dec. 18, 2014, 128 Stat. 2921.)

Editorial Notes

Editorial Notes

References in Text
Section 6 of the Securities Exchange Act of 1934, referred to in subsec. (a)(2)(A)(i), is classified to section 78f of Title 15, Commerce and Trade.
Section 408(a) of the Employee Retirement Income Security Act of 1974, referred to in subsec. (c)(3)(E), is classified to section 1108(a) of Title 29, Labor.
Section 4975(f)(4) and (5) of the Internal Revenue Code of 1986, referred to in subsec. (e)(1)(B), is classified to section 4975(f)(4) and (5) of Title 26, Internal Revenue Code.
Section 114 of the Federal Employees' Retirement System Technical Corrections Act of 1986, referred to in subsec. (e)(1)(E)(i), is section 114 of Pub. L. 99–556 which amended this section and enacted provisions set out as a note under this section.

Amendments
2014—Subsec. (e)(1)(C)(ii)(II). Pub. L. 113–255, §3(1), inserted "or beneficiary" after "participant" and "or option" after "fund".
Subsec. (e)(1)(C)(ii)(III). Pub. L. 113–255, §3(2), inserted "or beneficiary" after "participant" and "or beneficiaries' " after "participants' ".
2009—Subsec. (e)(1)(C). Pub. L. 111–31 designated existing provisions as cl. (i) and added cl. (ii).
1990—Pub. L. 101–335 repealed section 133(c) of Pub. L. 100–238. See Effective Date of 1988 Amendment note below.
1988—Subsec. (e)(1)(A). Pub. L. 100–238, §133(a)(1), inserted ", except as provided in paragraphs (3) and (4) of this subsection".
Subsec. (e)(1)(B). Pub. L. 100–238, §133(a)(2), substituted "Internal Revenue Code of 1986" for "Internal Revenue Code of 1954".
Subsec. (e)(1)(D). Pub. L. 100–238, §133(a)(3), inserted "only" in introductory provisions.
Subsec. (e)(2), (3). Pub. L. 100–238, §133(a)(5), added pars. (2) and (3) and struck out former pars. (2) and (3) which read as follows:
"(2) A civil action may be brought in the district courts of the United States—
"(A) by the Secretary of Labor—
"(i) to determine and enforce a liability under paragraph (1)(A);
"(ii) to collect any civil penalty under paragraph (1)(B); or
"(iii) to enjoin any act or practice which violates subsection (g)(2) or (h) of section 8472 of this title;
"(B) by the Secretary of Labor, any participant, beneficiary, or fiduciary—
"(i) to enjoin any act or practice which violates any provision of subsection (b) or (c); or
"(ii) to obtain any other appropriate equitable relief to redress a violation of any such provision; or
"(C) by any participant or beneficiary to recover benefits due to him or her under the provisions of subchapter III of this chapter, to enforce his or her rights under such provisions, or to clarify his or her rights to future benefits under such provisions.
"(3) An action may not be commenced under paragraph (2) with respect to a fiduciary's breach of any responsibility, duty, or obligation under subsection (b) or a violation of subsection (c) after the earlier of—
"(A) 6 years after (i) the date of the last action which constituted a part of the breach or violation, or (ii) in the case of an omission, the latest date on which the fiduciary could have cured the breach or violation; or
"(B) 3 years after the earliest date on which the plaintiff had actual knowledge of the breach or violation, except that, in the case of fraud or concealment, such action may be commenced not later than 6 years after the date of discovery of such breach or violation."
Subsec. (e)(3)(C)(ii). Pub. L. 100–366, §3(a)(1), substituted "28, provided that" for "28, if" and "shall be exclusive of" for "is exclusive of".
Subsec. (e)(4) to (8). Pub. L. 100–238, §133(a)(4), (5), added pars. (4) to (6) and redesignated former pars. (4) and (5) as (7) and (8), respectively.
Subsec. (e)(5). Pub. L. 100–366, §3(a)(2), substituted "paragraph (3)" for "paragraphs (3) and (4)".
1986—Subsec. (c)(3)(E). Pub. L. 99–556, §112, added subpar. (E).
Subsec. (e)(1)(B). Pub. L. 99–514 substituted "Internal Revenue Code of 1986" for "Internal Revenue Code of 1954".
Subsec. (e)(1)(E)(i). Pub. L. 99–556, §114(b), substituted "Secretary of Labor (or the Board under section 114 of the Federal Employees' Retirement System Technical Corrections Act of 1986)" for "Board".

Statutory Notes and Related Subsidiaries

Effective Date of 1988 Amendments
Pub. L. 100–366, §3(b), July 13, 1988, 102 Stat. 826, provided that: "Section 8477(e) of title 5, United States Code, as amended by subsection (a), shall apply to any civil action or proceeding arising from any act or omission occurring on or after October 1, 1986."
Pub. L. 100–238, title I, §133(b), Jan. 8, 1988, 101 Stat. 1762, provided that: "The provisions of section 8477(e)(1), (2), (3), (4), (5), and (6) of title 5, United States Code (as amended by subsection (a) of this section), shall apply to any civil action or proceeding arising from any act or omission occurring on or after October 1, 1986."
Pub. L. 100–238, title I, §133(c), Jan. 8, 1988, 101 Stat. 1762, which provided that the provisions of subsection (a) (and the amendments to section 8477(e) of title 5 contained therein) and subsection (b) of this section were to be repealed effective on Dec. 31, 1990, and that on and after Dec. 31, 1990, the provisions of section 8477(e) of title 5 were to be in effect as such provisions were in effect on Jan. 7, 1988, was repealed by Pub. L. 101–335, §8, July 17, 1990, 104 Stat. 325.

Interim Exemption Procedures
Pub. L. 99–556, title I, §111, Oct. 27, 1986, 100 Stat. 3133, provided that:
"(a) In General.—Subject to subsection (b), until such time as final regulations under subparagraph (A) of section 8477(c)(3) of title 5, United States Code, become effective, the Secretary of Labor may, in accordance with procedures under section 408(a) of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1108(a)], grant any exemption allowable under such section 8477(c)(3).
"(b) Termination of Interim Authority.—The authority to grant an exemption under section 8477(c)(3) of title 5, United States Code, using the procedures under section 408(a) of the Employee Retirement Income Security Act of 1974 shall expire not later than December 31, 1988."

Allocation of Fiduciary Responsibilities
Pub. L. 99–556, title I, §114(a), Oct. 27, 1986, 100 Stat. 3133, provided that:
"(1) Subject to paragraph (2), until such time as final regulations under subparagraph (E) of section 8477(e)(1) of title 5, United States Code, become effective, a fiduciary (as defined by section 8477(a)(3) of title 5, United States Code) may, in accordance with procedures established by the Federal Retirement Thrift Investment Board, make any allocation of fiduciary responsibilities.
"(2) The authority to make any allocation under section 8477(e)(1)(E) using the procedures referred to in paragraph (1), and any allocation so made using such procedures, shall expire not later than December 31, 1988."