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Congress should extend ERISA’s fiduciary standard to state and local pension plans. Milliman reported on Oct. 28 that the 100 largest public plans returned -1.4% in September, a loss of about $87 billion in market value, and their funded ratio slid from 89.0% to 87.4%. Their deficit grew by $112 billion in 30 days. More than 37 million Americans participate in state and local pension plans. If a trustee mismanages that money, none of them can file an ERISA claim, because the 1974 statute excludes governmental plans.
I’ve served as an expert witness in fiduciary litigation, and the opening question in every engagement is which standard governs. For a private plan, Section 1104 answers it. A fiduciary must act “solely in the interest of the participants and beneficiaries” and “for the exclusive purpose” of paying their benefits and defraying reasonable expenses. For a public plan, the answer depends on the state.
The duty works as a bargain. The trustee gives up self-interest in exchange for control of someone else’s money. English chancery enforced that bargain in 1726 in Keech v. Sandford, where a trustee who renewed a lease for himself, in good faith, had to surrender it. Cardozo restated the rule in 1928 in Meinhard v. Salmon: “A trustee is held to something stricter than the morals of the market place.” The Supreme Court has said ERISA’s fiduciary duties “draw much of their content from the common law of trusts.” A Review of Financial Studies paper found that sales of high-expense variable annuities fell 52% after the Labor Department proposed its 2016 fiduciary rule. The exemption for public plans dates back to 1974.
The Equable Institute puts the national funded ratio at 85.0% and unfunded liabilities at $1.13 trillion. Hoover’s Oliver Giesecke discounts liabilities at a duration-matched 3.83% instead of the plans’ 6.86% average assumption and calculates $4.58 trillion in unfunded liabilities, a 52.2% funded ratio, as of fiscal 2023. The cost lands on individuals. Paul St. George, a retired firefighter in Central Falls, Rhode Island, counted on $36,000 a year. After the city’s 2011 bankruptcy, his pension fell to $24,000, and he left his home of 25 years for an apartment and a full-time maintenance job, the Los Angeles Times reported in 2013.
Without a federal floor, legislatures in both parties treat these trusts as policy tools. Texas’s SB 13 restricts state contracts and investments involving firms the comptroller says boycott fossil fuels. The Fifth Circuit stayed a February ruling against it on May 29, and Texas resumed enforcement. On April 7, Oklahoma’s Supreme Court held that state’s similar law “unconstitutional in its entirety when applied to the Oklahoma Public Employees Retirement System,” because it created a “dual purpose” where the constitution requires an “exclusive purpose.”
Washington, a Democratic-run state, took a different route. Its Legislature voted to terminate the overfunded LEOFF Plan 1, which covers nearly 6,000 first responders hired before 1977, and to park nearly $4 billion of surplus in an account it can redirect. Retirees, among them former King County Sheriff Dave Reichert, sued on April 30.
I don’t need a villain to explain any of this. A legislator who sweeps a surplus and a trustee who votes a political screen bear no personal cost when it goes wrong. The beneficiary’s recourse is often a contract claim against the same government that wrote the rule. The courthouse door is frequently shut as well.
In Thole v. U.S. Bank, the Court held that defined-benefit participants who’ll be paid regardless of investment results lack standing to sue. A challenge to New York City’s fossil-fuel divestment was dismissed on that ground in 2024, so no court has weighed whether the divestment served the beneficiaries. The city’s firefighters’ union president, Andrew Ansbro, is quoted as saying: “We do not see our pension fund as an object to be used to make political statements.”
The fix needs no federal takeover. The Internal Revenue Code already conditions a plan’s tax-qualified status on a trust that can’t divert assets to “purposes other than for the exclusive benefit of his employees or their beneficiaries.” The only sanction is disqualification, which would punish the people it protects.
U.S. Sen. Bill Cassidy’s Restoring Integrity in Fiduciary Duty Act, S. 3086, introduced Oct. 30, 2025, would write a pecuniary-factors rule and a proxy-voting duty into ERISA, but only for private plans. It sits in committee. A Fiduciary Duty Restoration Act would carry Section 1104’s loyalty and prudence standards to governmental plans as a condition of tax qualification, require each plan to publish its proxy votes and the financial rationale for any nonfinancial screen, let the Labor Secretary and state attorneys general enforce it, and leave stricter state law intact. No court has tested the condition under the Spending Clause. The argument rests on South Dakota v. Dole, which upheld a conditional highway-funding grant.
In 1974, Congress directed its committees to study “the necessity for Federal legislation and standards” for public plans, and in 1978 a House subcommittee held a hearing on a Public Employee Retirement Income Security Act. Forty-eight years later, the file’s still open. What’s missing is a sponsor willing to put a name on the bill. Congress wrote the promise of undivided loyalty for the people who work at Intel. It owes the same promise to the teachers and firefighters who work for the rest of us.
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