Central States Fund, Trustees Face Fiduciary Breach Lawsuit

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By Carmen Castro-Pagan

April 26 — A group of current and former workers with the Kroger Co. accused the Central States pension fund and its trustees of breaching their ERISA fiduciary duties by failing to consider a proposal that would remove the company from the plan and create a new fully funded defined benefit plan.

In the complaint, filed April 25 in the U.S. District Court for the Northern District of Illinois, the workers allege that the trustees are preventing them from moving to a more stable plan that will pay full pension benefits.

The claims are “without merit,” said Thomas C. Nyhan, executive director and general counsel of Central States fund. As fiduciaries, the trustees “have a duty to safeguard the retirement benefits of all of our 407,000 participants—not a select few from a particular employer,” Nyhan told Bloomberg BNA April 26.

Last fall, the Central States, Southeast and Southwest Areas Pension Fund became the first multiemployer fund to seek approval of a plan to reduce benefits under the Multiemployer Pension Reform Act (205 PBD 205, 10/23/15) The Treasury Department is expected to make a decision on the Central States application within the next several days.

Kroger, a national grocery store, has approximately 5,000 employees who participate in the Central States fund. Contributions made on behalf of active Kroger workers make up approximately 2.5 percent of the plan's total contribution revenue, according to the complaint.

Kroger Participants' Benefit Cuts

Under the proposed plan to cut benefits, Kroger participants face “dramatic cuts” to their retirement benefits that could range from a 31 percent to a 71 percent reduction in accrued benefits, the complaint alleges.

In light of the critical and underfunded status of the plan, the International Brotherhood of Teamsters and Kroger negotiated a proposal to remove Kroger participants from the plan and create a new plan to provide them with stable, fully funded pensions, the complaint says. In addition, Kroger would pay an amount for withdrawal liability that exceeds its current obligations to the plan.

The trustees “flatly refused” to consider the proposal, indicating that the plan has “a firm policy against facilitating employer withdrawal in any way,” the complaint alleges.

According to the complaint, if the plan doesn't take action by May 1—or at the latest by June 15 if a deadline extension is reached by the parties—then Kroger and the Teamsters will have no obligation to execute the proposal and the Kroger participants “will be trapped in the plan.”

Doris Campbell and nine other named plaintiffs brought this lawsuit under the Employee Retirement Income Security Act.

Campbell alleges that the trustees are breaching their ERISA fiduciary duties by failing to investigate and negotiate an alternative withdrawal proposal. Campbell alleges that trustees also failed to act in the sole interest of the participants.

Central States is prepared to defend against the complaint and will prevail by demonstrating that the trustees' actions are consistent with their fiduciary duties, Nyhan said.

Jenner & Block LLP represents the workers.

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com