In a new lawsuit, Martinez-Gonzalez v. Catholic Schools of the Archdioceses of San Juan Pension Plan, a class of plaintiffs alleges the multiemployer plan set up by the church for Catholic School employees was set up as an Employee Retirement Income Security Act (ERISA) plan, but plan fiduciaries, including service providers, failed to comply with ERISA.
According to the complaint, the plaintiffs say the Superintendence of Catholic Schools of the Archdioceses of San Juan, as settlor and/or sponsor of the plan represented to them that it made the election under Section 410(d) of ERISA for the plan to be an ERISA-governed plan. An election under this subsection with respect to any “church plan” shall be binding with respect to such plan, and, once made, shall be irrevocable.
However, since 2009 until the present all the defendant administrators and fiduciaries of the plan failed to send a summary of the annual financial report of the plan to its participants and beneficiaries as provided by ERISA and the plan. Neither the current defendant administrators and fiduciaries of the plan nor the former ones ever sent to the plan participants and beneficiaries a copy of the actuarial studies performed to the plan or any audited financial statements. At least since 2009 until the present, the fiduciaries and trustees failed to pay the annual premiums imposed by the Pension Benefit Guarantee Corporation (PBGC) on every pension plan covered by ERISA. The defendant trustees and fiduciaries failed to pay a bond, in violation of Section 412 of ERISA and the deed of trust of the plan.
The lawsuit claims the defendant fiduciaries and administrators of the plan failed to comply with any of the provisions of Pension Protection Act of 2006 (PPA) or the Multiemployer Pension Reform Act of 2014 (MPRA) to prevent the insolvency of the plan. In addition, they failed to inform to the plan participants and beneficiaries about the deficit of the pension fund and its critical financial situation, until the plan became insolvent, during the first months of 2016.NEXT: Investments contributed to insolvency
From 2006 until the present, the defendant fiduciaries and administrators of the plan invested more than 80% of the pension plan’s fund in close end bonds’ funds and other bonds of several instrumentalities and public corporations of the Commonwealth of Puerto Rico. The lawsuit alleges that during that period of time, such close end bonds’ funds and bonds lost between 70% and 80% of their market value. “Such loss provoked the accelerated insolvency of the plan,” the complaint says.
The defendant administrators and fiduciaries of the plan failed to diversify the investment portfolio of the pension fund in violation of ERISA. The complaint says the overall investment strategy of the defendant fiduciaries and administrators of the plan was the result of the fiduciaries and administrators merely attending monthly meetings and rubber stamping the judgment of the brokers and brokerage firms serving the plan. These brokers and brokerage firms are also listed as defendants in the lawsuit.
The compliant says the defendant brokers’ advice served as a primary basis for the investment decisions of the plan. Their advice to excessively buy closed end bonds’ funds and several bonds of various instrumentalities and public corporations of the Commonwealth of Puerto Rico for a fee resulted in substantial losses to the pension fund and provoked its insolvency. “The downward trend of the economy of Puerto Rico between 2006 and 2016 and its high indebtedness, should have warned a prudent broker that such high concentration of the plan’s assets in these bonds could very well provoke a substantial loss to the plan’s fund. These brokers violated their fiduciary duties towards the plaintiffs, as plan participants and beneficiaries of the pension plan,” the complaint says.
On or around March 2016, the plan sponsor defendants together with plaintiffs’ employers decided to terminate the plan. Once they made this decision, they publicly claimed that the plan was a “church plan” exempt from such provisions.
The lawsuit says that even if the court rules that the Superintendence of Catholic Schools of the Archdioceses of San Juan, as sponsor or settlor of the plan failed to make an election to be covered by all the provisions of ERISA, then this defendant made a false representation to all the plan participants and beneficiaries, including the plaintiffs in this case and consequently, it is liable to them and to the pension fund for any losses that such misrepresentation might have caused to them.
The complaint is here.