The controversy over pension benefits of Catholic school teachers, in context

by Aug 3, 2018Puerto Rico0 comments

In the past few years, there have been many cases brought before the Supreme Court of the United States involving denials of pension plan payouts to beneficiaries of church-affiliated entities, especially cases involving Catholic Hospitals and their employees. The issue of pension plans is back in the news again, but this time, it concerns Catholic School pension plans in Puerto Rico. In 1974, a federal law titled “The Employee Retirement Income Security Act” (ERISA) was enacted in order to establish minimum standards that would help protect individuals who were beneficiaries of most voluntarily established private industry pension and health plans. ERISA requires plan providers to give participants information about plan features and funding, but more importantly, this law also requires plans to establish a grievance and appeals process for participants, gives participants the right to sue for benefits and breaches of fiduciary duty, and guarantees payment of certain benefits through a federally chartered corporation if a defined benefit plan is terminated. Legal cases involving  ERISA and pension plan protections have been in the news recently, and one of the main arguments centers around the issue of whether or not a pension can be defined as a “church plan,” because church-affiliated employers that offer “church plans” are not required to provide ERISA’s protections to their employees. On March 27, 2017, the matter of Advocate Health Care Network v. Stapleton was brought before the Supreme Court. Maria Stapleton and other lawyers represented employees of Catholic-run hospitals who believed that they were entitled to certain pension benefits from “church-affiliated” organizations such as Advocate Network and several others who offered pension plans to employees. SCOTUS ruled unanimously in favor of Advocate Network ET AL., and the argument simply boiled down to language. When ERISA was first enacted into law in 1976, under paragraph (A), “church plan” exemptions were granted to institutions who had plans that were “established and maintained for its employees by a church.” Not long after the law was enacted, there was much confusion as to whether organizations like Jewish schools and Catholic hospitals were exempt from ERISA’s regulations. In 1980, Congress passed HR 3904, also known as the “Multiemployer Pension Plan Amendments Act of 1980.” This amendment clarified this issue, as the new subparagraph (C) (i) states that exempt entities  are those that also “include a plan maintained by an organization … controlled by or associated with a church.” The words “established…by a church” no longer held the same power, as Congress deemed any church-affiliated group to be “included” in the list of exempt entities. Justice Elena Kagan reported that “Everything we can tell from extra-statutory sources about Congress’s purpose … supports our reading of its text.” In other words, Congress knew exactly what they wanted when the changed the language of that particular section of ERISA. Justice Sonia Sotomayor easily agreed with Kagan’s opinion, but she did go on to say that  “organizations such as petitioners operate for-profit subsidiaries, employ thousands of employees, earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of complying with ERISA. … This current reality might prompt Congress to take a different path.” On January 11, 2018, The Puerto Rico Catholic Schools Employees’ pension plan filed for Chapter 11 bankruptcy in the US Bankruptcy Court for the District of Puerto Rico.  The eligibility of a debtor to begin a bankruptcy case is strictly regulated by the Bankruptcy Code. For instance, Section 109(d) provides that only a “person” may be a debtor under chapter 7 and 11. Under Bankruptcy code, a “person” is a defined as “a natural person or an organization.” Partnerships and Corporations are also included under this definition.  The definition of “corporation” is limited to business entities, including a “business trust.” Only the Bankruptcy Code, and not federal law, may determine if the debtor is eligible to claim bankruptcy.  In this case involving the Puerto Rico Catholic Schools employee plans, the Movants claimed that the Debtor was ineligible to file a bankruptcy petition because the Catholic School Employees Pension Trust is not a “person” under §101(41), nor a “corporation” under §101(9) of the Bankruptcy Code. The bankruptcy petition was dismissed because the debtor trust did not meet the definition of a corporation in §101(9)(A)(v),  and The court eventually concluded that the Catholic School Employees Pension Trust was not a business trust because it was established to secure payment to beneficiaries. The bankruptcy petition was dismissed because the debtor trust did not meet the definition of a corporation in §101(9)(A)(v). Preceding this bankruptcy case, in 2016, a group of 270  employees of Puerto Rico Catholic schools filed a lawsuit in federal court seeking $50 million from the Archdiocese of San Juan, arguing that pension plan administrators who on June 30, 2016, dissolved all pension plans, also mismanaged their retirement assets  by failing to send required financial reports, pay annual premiums to the Pension Benefit Guaranty Corporation, diversify plan investments, measures to prevent insolvency. On January 27, 2017, a lawsuit seeking class treatment for more than 200 teachers and damages of up to $50 million was brought before The United States District Court for the District of Puerto Rico. The class action lawsuit challenged the trustees’ decision to treat the pension plan as a “church plan.”  Although defendants Superintendence of Catholic Schools of the Archdioceses of San Juan (the “Superintendence”) and the Trust of the Catholic Schools of the Archdiocese of San Juan Pension Plan (“Plan’s Trust”) recommended dismissal of the case, Magistrate Judge Bruce McGiverin denied that request. On March 27, 2018, Puerto Rico Supreme Court judge, Anthony Cuevas, ordered authorities to embargo any properties or money owned by the church in order to ensure the payment of $4.7 million in teacher pensions. This embargo included bonds, cars and artwork, and he emphasized that that the order could be carried out day or night anywhere in Puerto Rico. Cuevas’ ruling was based on his opinion that “The plaintiffs are suffering irreparable damage as a result of the suspension of pension payments.” The archbishop responded by saying that a board of trustees created the pension system in 1979 as a “work of charity” and that teachers were not asked to contribute, also noting that close to half of the 80 schools operating in 1979 have now closed. Later in the day, an appeals court temporarily halted Cuevas’ ruling, with Archbishop Roberto Gonzalez declaring: “I once again invite both sides to dialogue.” On June 15, The Roman Catholic Archdiocese of San Juan, PR filed a petition urging the US Supreme Court to stay, or pause, the seizure order, which is set to occur anytime after June 25 when the order becomes effective—pending its review. The archdiocese describes this legal move as “Reminiscent of church property seizures during the French Revolution.”  The petition also argues that these seizures violate the Religious Freedom Restoration Act, and that The Puerto Rico Supreme Court and the teachers “apparently want access to a deeper pocket.” and that these seizures would impose “enormous irreparable injury” on the dioceses, their constituent parishes, Puerto Rico’s millions of Catholics, and other citizens. On June 21, Justice Stephen Breyer denied the archdiocese’s application for a stay pending the filing and disposition of its request to review the case. The following day, Gene C. Schaerr, counsel representing the archdiocese, renewed application for a stay, arguing that emergency action is needed. Schaerr requested that the case be brought before Supreme Court Justice Samuel Alito in accordance with Supreme Court Rule 22.4, which states that “the party making an application, except in the case of an application for an extension of time, may renew it to any other Justice, subject to the provisions of this Rule.” If one is to wonder why Schaerr may have specifically chosen Justice Alito to oversee this case, during Advocate Health Care Network v. Stapleton, when told by counsel for the  respondents, James A. Feldman, that the justices should not be overly concerned about reliance interests, Justice Alito, seeming somewhat annoyed, repeatedly questioned Feldman about the amount of the penalties sought by employees, which was finally revealed to be an exorbitant $66 billion.