Puerto Rico Catholic School Teachers Win Round in Pension Suit

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By Carmen Castro-Pagan

Puerto Rico Catholic school teachers survived a first attempt to dismiss a proposed class action that alleges the administrators of their pension plan mismanaged their retirement assets and failed to comply with ERISA ( Martinez-Gonzalez v. Catholic Schs. of the Archdioceses of San Juan Pension Plan , D.P.R., No. 3:16-cv-02077, report and recommendation 1/9/17 ).

The main issue in the case is whether the Catholic schools’ pension plan is subject to the Employee Retirement Income Security Act or exempt from the federal law as a church plan. Pension plans that qualify for ERISA’s church-plan exemption don’t have to comply with certain obligations, including disclosure and funding requirements under the federal law.

A pension plan established and maintained by a church-affiliated organization—such as the Superintendence of Catholic Schools of the Archdioceses of San Juan—isn’t a church plan exempt from ERISA, Magistrate Judge Bruce J. McGiverin of the U.S. District Court for the District of Puerto Rico said Jan. 9 in refusing to dismiss the case.

McGiverin, in his report and recommendation, relied on three cases by the U.S. court of appeals for the Third, Seventh and Ninth circuits. Those cases, and dozens of others pending in federal courts throughout the U.S., have challenged hospitals that treat their pension plans as church plans. The Puerto Rico lawsuit appears to be the only one that challenges a school system using ERISA's church plan exemption.

The controversy over the use of ERISA's church plan exemption may soon get some resolution. The U.S. Supreme Court will soon be reviewing those three appeals court decisions and deciding whether a pension plan must be both “established and maintained” by a qualifying church-affiliated entity to claim the legal exemption.

Court Likely to Adopt Report

The magistrate judge’s opinion was “very thorough and complete,” Karen Ferguson, Director of the Pension Rights Center in Washington told Bloomberg BNA. The Pension Rights Center has filed a number of friend-of-the-court briefs supporting participants’ positions that their pension plans aren’t church plans exempted from ERISA.

The court will, in all likelihood, adopt McGiverin’s recommendation, which covered all the bases and adopted all the arguments raised by the participants, attorney Francisco J. Amundaray-Rodríguez, who represents the proposed class told Bloomberg BNA.

“We will file our objections to the U.S. District Judge in charge of the case,” attorney Frank Zorrilla, who represents the Superintendence, told Bloomberg BNA via e-mail. We reiterate our position that the pension plan is a church plan by reason of having been “sponsored and established by the church given the fact that the Superintendence” is an “integral part of the church,” Zorrilla said.

No Church Plan Exemption

The Superintendence established the plan in 1979 as an ERISA-covered pension plan for employees of Catholic schools in Puerto Rico, according to court documents. In March 2016, the Superintendence terminated the plan and informed the participants that the plan wasn’t covered by ERISA because it was a church plan.

The participants argued that the church plan exemption didn’t apply because while the plan was maintained by a church-affiliated entity, it wasn’t established by the church. As such, they claim that the administrators violated ERISA by failing to send required financial reports, pay annual premiums to the Pension Benefit Guaranty Corporation, diversify plan investments and take measures to prevent insolvency.

In siding with the participants, the magistrate judge noted the Superintendence’s argument that it was an “integral part of the Catholic Church,” but it didn’t “go as far as to press the theory that the plan was established by the Catholic Church itself.”

Church or Affiliated Entity

The fundamental thing is that this plan wasn’t established by the Archdioceses of San Juan, Ferguson said. The only pension plans that are exempted from ERISA as church plans are those established by a church, and in this case the Superintendence isn’t the church, Ferguson said.

The magistrate judge also took notice that the Archdioceses of San Juan has filed a document in a Puerto Rico state court claiming that the “Archdiocese is a separate and independent entity from the Catholic Church.”

Even taking as true that the Superintendence and the schools it oversees are “integral” to the “mission and purpose” of the Catholic Church, this doesn’t absolve the plan from the requirements that it be established by a church rather than a church-affiliated entity in order to qualify for ERISA’s church-plan exemption, McGiverin said.

Much is at stake in this case, Amundaray-Rodríguez said. Although the plan was terminated, the assets haven’t been distributed “out of caution,” he said. If the case doesn’t settle soon, this will be a long litigation where we can expect a $50 million judgment for the class, he said.

Mercado Soto Ronda Amundaray & Pascual and Carlos F. Lopez-Lopez represent the class. Frank Zorrilla-Maldonado, Schuster & Aguilo LLC, Rabell-Mendez CSP and Barresi Law Office represent the Superintendence.

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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