Puerto Rico Catholic Schools’ Pension Plan Files for Bankruptcy

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By Carmen Castro-Pagan

The Puerto Rico Catholic Schools Employees’ pension plan filed for bankruptcy amid allegations that it mismanaged plan assets.

The plan filed a petition for reorganization on Jan. 11 under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Puerto Rico. The plan has an estimated $10 million in assets and $10 million in liabilities, according to court documents.

The filing comes one year after a federal judge in Puerto Rico declined to dismiss a proposed class action by teachers who challenged the plan trustees’ decision to treat the plan as a “church plan.” Classifying the plan as a church plan meant it was exempt from funding, disclosure, and insurance requirements of the Employee Retirement Income Security Act. The lawsuit seeks class treatment for more than 200 teachers and damages of up to $50 million.

Bankruptcy protection by pension plans is rare, and it’s even rarer for a plan to file for bankruptcy while facing pending litigation. In most cases, the filing of a bankruptcy petition automatically stays certain collection and other actions against the debtor.

“I understand that such filing would have no effect on the case other than a momentary automatic stay,” Francisco Amundaray, attorney for the Catholic schools’ workers, told Bloomberg Law Jan. 16. The workers will move to dismiss the petition for bankruptcy filed by the pension plan, Amundaray said.

The designation of a pension plan as a “church plan” has been a controversial issue over the past several years, but the bulk of the cases have been brought against religiously affiliated hospitals rather than schools. Workers in the cases alleged that the plans became severely underfunded because they were treated as ERISA-exempt church plans. Last year the U.S. Supreme Court addressed the issue by allowing religiously affiliated hospitals to treat their pension plans as church plans exempt from ERISA.

Several hospitals have reached multimillion-dollar settlements, including Washington-based Providence Health & Services ($352 million), Connecticut-based Saint Francis Hospital ($107 million), Trinity Health Corp. ($75 million), Presence Health ($20 million), Ascension Health ($8 million), and Alabama-based Baptist Health System Inc. ($11 million).

The attorneys’ for the Archdiocese didn’t immediately respond to Bloomberg Law’s request for comments.

Mercado Soto Ronda Amundaray & Pascual PSC and Carlos F. Lopez-Lopez represent the workers. Sanabria Bauermeister Garcia Berio LLC, Rabell Mendez CSP, and Barresi Law Office represent the Archdiocese.

The case is Martinez-Gonzalez v. Catholic Schs. of Archdioceses of San Juan Pension Plan , D.P.R., No. 3:16-cv-02077, informative motion regarding filing of bankruptcy petition 1/12/18 .

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

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

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