Pension changes could spark suit
June 22, 2005 - The Mehlville Fire Protection District Board of Directors may be sued by union employees if it makes changes to the district's pension plan.
An attorney representing Mehlville Local 1889 of the In-ternational Association of Firefighters warned board members in a June 16 letter that changing the district's existing defined benefit plan for retirement to a defined contribution plan for new employees could result in a lawsuit in which board members could be held individually liable.
"... If this board contemplates or takes any such adverse action, we will be left with no choice but to begin immediate litigation to prevent this adverse economic impact on the existing pension fund and other benefits available to participants,'' attorney John Goffstein states in the letter to the board.
"It is our belief that such a drastic action taken by the trustees will be a breach of contract and fiduciary responsibility,'' the letter continues. "The district under such circumstances cannot have an obligation to fund your legal defense. In short, we will seek individual liability from any board member voting to change the existing structure of the pension plan and this includes the cost of defense and any economic damage done to the trust funds, the participants or the district.''
The three-member Board of Directors — Chairman Aaron Hilmer, Treasurer Bonnie Stegman and Secretary Dan Ottoline Sr. — has been discussing changes to the pension plan at recent meetings.
Although the letter is addressed to all three directors, the first part of the letter appeals to Hilmer and Stegman, both of whom were elected in April, ousting former Chairman Tom O'Driscoll and former Secretary David Gralike.
"Our first concern is that each of the two new trustees must recognize that you maintain a fiduciary responsibility to act for the exclusive benefit of the plan participants. We believe that to be your responsibility under state and federal law. This is not a political post,'' Goffstein states.
Citing fiscal waste, Hilmer and Stegman ran for election in April with the promise of rolling back a 33-cent tax-rate increase approved in November and reforming the district.
Hilmer told the Call that by threatening a lawsuit the union is ignoring what taxpayers want.
"They are slapping people in the face by just waving this stuff around," he said.
The letter was written after the Pension Committee voiced its concern about recent changes and the plans of the board at the June 13 quarterly pension meeting. The week before, at the June 6 board meeting, Hilmer, Stegman and Ottoline voted to hire Standard Insurance for the district's disability and life insurance. Then at the pension meeting, board members discussed overhauling the district's pension plan.
But Goffstein in his letter states changes to the pension fund are unnecessary.
"The actuaries have repeatedly advised the board that the trust fund is in excellent shape and very close to reaching 100 percent of its fully funded capacity. In addition thereto, with the advent of new employees coming into the plan, it should be clear that within a short, reasonable and viable period of time, the plan will again exceed 100 percent of its funding responsibilities," the letter states.
Employees do not contribute to the district's pension fund, which is funded by tax dollars and the return on investments. In the district's current tax rate of 90 cents, 9.4 cents are designated for the pension fund. However, over the past two years, the district had to use about $300,000 of operational funds from the general and ambulance funds to compensate for the revenue deficiency in the pension fund. For 2005, the pension fund still is short an estimated $80,000 of the minimum contribution re-quirements of the current pension plan.
At the June 13 pension meeting, the board discussed three potential changes to the pension plan.
One is an amendment to remove disability benefits from the pension plan. Since the board approved a separate disability benefit plan under Standard Insurance, district employees have been covered by two disability plans. Hilmer and Stegman have said at board meetings that the district currently is liable for the original disability benefits under the pension plan and that they aim to eliminate that risk.
"Basically, as we spoke about it at the (board) meeting, this is really the only option for the district," Hilmer told the Pension Committee. "We have to get out of this self-funding ... By doing this we would remove the burden from the district as we spoke about..."
Goffstein told the board at the pension meeting that he believes the disability change is being rushed and that the union members need more time to look over the details.
"With all due respect, I've never seen anything like this," Goffstein said. "I can't believe you would even think about doing something like this without a meet-and-confer process and without going over the details of it. For example, whether there's an offset payment with the insurance, whether the money goes into the existing pension fund, what's going to replace it, why is it going to a private carrier, I mean, I say this with respect, this is an injunctive process, in other words, this isn't going to happen without the union or the union trustees signing off on this, or a court order. I hope I made myself clear."
Stegman defended the disability change, saying that before the disability plan did not cover injuries that occurred off the clock.
"What we did was reduced the liability of the district so that we actually have a better benefit than we did," Stegman said. "You're going to receive disability even if you don't have a work-related injury, so I think you actually increased your benefits here, so I mean, I guess pretty much if you have to do it on an injunction, then go ahead.''
In his letter, Goffstein stated that eliminating the current disability pension program "will be detrimental to the plan participants and actually take away benefits to which the firefighters and paramedics would have otherwise been entitled should they attain disability."
He further contends that if the board takes away any benefits employees are entitled to should they become disabled, it would be in violation of the Americans with Disabilities Act, the Civil Rights laws, and the "contracts clause" of the state and federal constitutions.
The board also discussed contracting Milliman, the district's consulting actuary, to perform a study on potential changes to the district's pension plan. The current pension plan is a defined benefit plan in which the district is responsible and liable for the investment of the pool of funds designated for the pension plan. The study, which should be completed in about three weeks, will determine the costs and benefits of various changes, such as changing the benefits percentage earned or terminating the defined benefit plan in order to switch to a defined contribution plan.
Finally, the board discussed placing new hires on a defined contribution plan, instead of on the current pension plan. In a defined contribution plan, employers pay benefits in the form of lump-sum distribution, which the employees are free to invest as they please and in turn are liable for their own retirement funds.
Goffstein states in his letter, "Any change from a defined benefit plan to a defined contribution plan for new employees will have a disastrous effect of providing a serious adverse and negative financial impact on the current plan and place in danger the benefits promised by contract to be available for all employees for whom contributions have been made to date. For this reason, it is our opinion that any change to a defined contribution plan is not in the best interest of either the plan or the plan participants or for that matter, the entire district. A change to a defined contribution plan is therefore in violation of the law.''
The Pension Committee was scheduled to discuss the pension and disability plans Monday night — after the Call went to press.