Does the New York State Deferred Compensation Board have to investigate, monitor, or enforce compliance by local government deferred compensation plans, either generally or after it learns one might be out of compliance?

Plain-English summary

New York's Deferred Compensation Board oversees the State's deferred-comp plan for state employees. Local governments (counties, cities, towns, villages, school districts, public authorities, and so on) can either (a) join the State plan or (b) create their own local plan. The Board sets standards for both kinds of plans by regulation. The question put to the AG: when a local government runs its own plan, is the Board obligated to police it for compliance with the Board's regulations or with IRC § 457(b)?

The AG's answer: no. State Finance Law § 5 gives the Board responsibility for running the State plan and for adopting standards applicable to local plans, but it does not give the Board responsibility to administer or oversee local plans. Local plans are administered by the local sponsoring government employer. Federal § 457(b) compliance is enforced by the IRS. The Legislature, when it has wanted to give a state agency investigation and enforcement power, has said so explicitly (the AG points to the Canal Corporation, the State Lighting Efficiency Standards Act, and the Secretary of State's hearing-aid-dispenser authority as examples). Section 5 says no such thing about the Board.

The AG also rejected three increasingly specific framings of the question:
1. Does the Board have to monitor proactively, in the absence of any notice? No.
2. After it learns of possible non-compliance through an inquiry or media report? No.
3. After the Board has actually given written or oral advice to a local plan? Still no.

The duty is the same: the Board has the powers explicitly granted plus those necessarily implied. Investigation and enforcement of local plans were not granted, and the Board can fulfill its statutory mission (operating the State plan, setting standards) without them.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context

What the opinion meant for the Board

The Board could focus its resources on the State plan and on standard-setting. It did not have to staff or budget for an investigation-and-enforcement function over hundreds of local plans across New York. It could choose to provide guidance to local plans on request without that voluntary advice triggering a continuing oversight obligation.

What the opinion meant for local government employers

The opinion is a reminder that responsibility for local-plan compliance sat with the local sponsoring employer, not with the Board. If a local plan went off the rails, the consequences (loss of tax-deferred status under IRC § 457, IRS enforcement, participant suits) flowed to the local employer and its participants, not to the State Board.

What the opinion meant for plan participants

A local-plan participant who discovered a compliance problem could not, on the strength of this opinion, demand that the Board step in to fix it. The participant's remedies were against the local employer (state-law claims, possibly under fiduciary duties) or through reporting to the IRS for federal § 457 issues.

Common questions

Q: What is a § 457(b) plan?
A: A federal-tax-deferred retirement plan that state and local governmental employers (and certain tax-exempt employers) can offer to employees. Contributions are excluded from current income and grow tax-deferred until distribution. Compliance with the requirements of § 457 of the Internal Revenue Code is enforced by the IRS.

Q: What is the New York Deferred Compensation Board's actual job?
A: Per State Finance Law § 5(2)(a), the Board established the State's § 457(b) plan and adopts the rules and regulations that govern its administration. The Board can contract with financial organizations to administer the plan and invest plan funds (§ 5(2)(b), (h)) and adopts framework regulations that apply to local plans as well (§ 5(2)(e)).

Q: What does the framework for local plans look like?
A: The Board's regulations at 9 N.Y.C.R.R. § 9000.1 et seq. set standards that apply to both the State plan and local plans, including five-year contract limits and annual financial-statement filing requirements (§§ 9003.5(a), 9005.1). Setting these standards is a legislative-style function: the Board issues the rules and the local employers must comply.

Q: Why did the AG cite the Canal Corporation, energy-efficiency, and hearing-aid statutes?
A: To show that when the New York Legislature wants to give a state body investigation and enforcement powers, it does so in clear text. Canal Law § 10 expressly authorizes the Canal Corporation to "investigate" and "enforce." Energy Law § 8-106 sets up an administration-and-enforcement scheme. General Business Law § 803 lets the Secretary of State investigate. Section 5 of the State Finance Law contains nothing similar for the Deferred Compensation Board's relationship to local plans, so the silence is meaningful.

Q: What is the Flynn v. State Ethics Commission rule the opinion cites?
A: An administrative agency is a creature of statute and has only the powers the Legislature granted plus those necessarily implied from that grant. In re Flynn v. State Ethics Com'n, 87 N.Y.2d 199, 202 (1995). The opinion applies that rule to read the Board's authority narrowly.

Background and statutory framework

State Finance Law § 5 sets up two parallel deferred-compensation universes: a State plan run by the Board, and local plans administered by local government employers. The statute speaks differently to each:

• State plan (§ 5(2)(a)-(h)): the Board "establish[es]" it, "promulgates" governing regulations, contracts with financial organizations, hires staff. This is hands-on operational authority.
• Local plans (§ 5(2)(e), (3)(c)): the Board adopts the framework standards (selection of financial organizations and investments). The local sponsoring employer "administers or arranges for the administration" of the local plan. The statute conspicuously does not give the Board authority to investigate, monitor, or enforce local-plan compliance.

The Board's regulations at 9 N.Y.C.R.R. § 9000.1 et seq. apply to both. The regulations set standards (contract length, financial reporting). Setting standards differs from policing them.

For comparison statutes the AG cites:
- Canal Law § 10 (Canal Corporation: power to investigate and enforce);
- Energy Law § 8-106 (administration and enforcement of State Lighting Efficiency Standards for Existing Public Buildings Act);
- General Business Law § 803 (Secretary of State's investigation power for hearing-aid dispensers).

Each of these is an explicit grant of investigation and enforcement authority. The Deferred Compensation Board's statute is not.

Citations and references

Statutes:
- N.Y. State Finance Law § 5, § 5(2)(a), (b), (e), (h), § 5(3), § 5(3)(b), (c)
- 26 U.S.C. § 457(b), (e) (federal deferred-compensation rules)
- 9 N.Y.C.R.R. § 9000.1, § 9003.5(a), § 9005.1 (Board standards regulations)
- N.Y. Canal Law § 10
- N.Y. Energy Law § 8-106
- N.Y. General Business Law § 803

Cases:
- In re Flynn v. State Ethics Com'n, 87 N.Y.2d 199, 202 (1995), administrative agencies have only granted plus necessarily-implied powers

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/2017-f2_pw_15.pdf

Original opinion text

State Finance Law §§ 5, 5(2)(a), 5(2)(b), 5(2)(e), 5(2)(h), 5(3), 5(3)(b), 5(3)(c); Internal Revenue Code § 457(b); United States Code §§ 26, § 457(b), 26, § 457(e); N.Y.C.R.R. §§ 9, § 9000.1, 9, § 9003.5(a), 9, § 9005.1; Canal Law § 10; Energy Law § 8-106; General Business Law § 803

The Deferred Compensation Board is not obligated to investigate, monitor, or enforce compliance by local deferred compensation plans.

December 21, 2017

David E. Fischer
Executive Director
Deferred Compensation Plan
Empire State Plaza Concourse, North
Room 124
P.O. Box 2103
Albany, NY 12220-2103

Formal Opinion
No. 2017-F2

Dear Mr. Fischer:

The Deferred Compensation Board (Board) oversees the deferred compensation plan established for state employees. A local governmental entity can make a deferred compensation plan available to its employees by participating in the state deferred compensation plan or by establishing its own deferred compensation plan. You have asked about the Board's responsibility with respect to local governmental employers that establish their own deferred compensation plan. Specifically, you have asked whether the Board is obligated to take affirmative action to investigate, monitor, or enforce compliance by the local plans (a) with the regulations the Board has adopted regarding the standards and requirements of plans established under State Finance Law § 5 or (b) with section 457(b) of the federal Internal Revenue Code, under each of the following circumstances:

• In the absence of any notice of potential non-compliance,
• After becoming aware of non-compliance (for example, through an inquiry from a local plan or through media reports), or
• After providing written or oral advice to a local plan.

As explained below, we are of the opinion that the Board is not obligated to investigate, monitor, or enforce local plans' compliance with the Board's regulations or section 457(b) of the Internal Revenue Code.

Section 457(b) authorizes a state or local governmental unit to establish and maintain a deferred compensation plan for its employees. 26 U.S.C. § 457(b),(e). Participation in such a plan allows an employee to defer federal income taxation on retirement savings into future years. Plans that do not comply with the requirements of section 457, however, jeopardize the tax-deferred status of participants' contributions. The Internal Revenue Service enforces compliance with the requirements of section 457 of the Internal Revenue Code and its associated regulations.

The New York Legislature enacted section 5 of the State Finance Law to authorize the establishment of deferred compensation plans, for state and local government employees, that conform to the requirements of section 457. State Finance Law § 5(2)(a),(3). Section 5 of the State Finance Law creates the framework for a deferred compensation plan for state employees ("State Plan" or "Plan") and other plans for local governmental employees ("local plans"). Section 5 also lays out the Board's powers and duties with respect to those plans, which differ with respect to the different plans.

The Board was responsible for establishing the State Plan. State Finance Law § 5(2)(a). And the Board is required to promulgate rules and regulations for its appropriate administration. State Finance Law § 5(2)(a). The Board is authorized to contract with financial organizations to administer the State Plan and to invest funds held under the Plan. Id. § 5(2)(b). The Board also is authorized to hire employees deemed necessary and prudent to assist with administration. State Finance Law § 5(2)(h). In short, the Board is responsible for operating and overseeing the State Plan.

With respect to the local plans, the Board is charged with establishing the framework within which they operate, for example, the Board must adopt regulations addressing the selection of financial organizations both to participate in the plans and for investment purposes, State Finance Law § 5(2)(e), but the Board is not responsible for administering or overseeing the local plans. Instead, the sponsoring local governmental employer administers or arranges for the administration of a local plan. State Finance Law § 5(3)(c). Section 5 does not give the Board any oversight responsibility with respect to local plans.

The Board has adopted standards that apply to both the State Plan and local plans. 9 N.Y.C.R.R. § 9000.1. According to these standards, for example, a contract between the Board or a local governmental employer and an entity providing administrative services must be in writing and cannot exceed five years, and both the State Plan and local plans must file certain financial statements annually. 9 N.Y.C.R.R. §§ 9003.5(a), 9005.1.

In light of the scheme established by State Finance Law § 5, we conclude that the Board is not obligated to investigate, monitor, or enforce compliance by local plans with the regulations it promulgated or the Internal Revenue Code. The Board is a creature of statute and, as such, has only the powers the Legislature granted it and those necessarily implied from that grant. In re Flynn v. State Ethics Com'n, 87 N.Y.2d 199, 202 (1995). The authority granted to the Board relates to administering or overseeing the administration of the State Plan and to establishing the standards by which the State Plan and local plans will operate. The Legislature did not expressly grant the Board the power to initiate investigations into or to monitor or enforce compliance of local plans with those standards, powers the Legislature has explicitly granted in other contexts to specific state entities. See, e.g., Canal Law § 10 (powers of the Canal Corporation include "[i]nvestigat[ing] all matters relating to the administration and operation of the canal system and its personnel" and "[e]nforc[ing] compliance with laws, rules and regulations relating to posting of limited loads and clearances" on certain bridges); Energy Law § 8-106 (administration and enforcement of State Lighting Efficiency Standards for Existing Public Buildings Act); General Business Law § 803 (Secretary of State's powers, with respect to hearing aid dispensers, to investigate and examine for compliance with state law). Nor, in our opinion, is such power necessarily implied from the relatively narrow authority the Legislature did grant: the Board can fulfill its statutory mandate without investigating or enforcing compliance with the regulations it promulgated or the Internal Revenue Code.

We therefore conclude that the Board is not obligated to investigate, monitor, or enforce compliance with the regulations it promulgated or the Internal Revenue Code.

Very truly yours,

ERIC T. SCHNEIDERMAN