Court denies Mehlville firefighters union’s appeal of pension-fund ruling

Union attorney alleges board members committed ‘egregious fiduciary breaches’


While changing the Mehlville Fire Protection District’s pension plan may be “harsh” on employees, an appellate court judge told an attorney representing union employees last week that “unless you can show us some law, we can’t help you.”

The Eastern District Missouri Court of Appeals on Tuesday upheld an August 2007 St. Louis County Circuit Court ruling that the fire district’s Board of Directors have the authority to change the district’s pension plan.

The comments by Judge Glenn A. Norton of the Eastern District of the Missouri Court of Appeals to union attorney John Goffstein were made Dec. 9 during oral arguments.

Without a standard of review showing law that prohibits the pension plan from being changed, “our hands are tied,” Norton told Goffstein.

“Where in law is it saying that the (circuit court’s) ruling was wrong?” Norton asked Goffstein. “Your arguments … there’s nothing behind them … You’re saying words that sound good … But you’ve got to follow some law here.”

Local 1889 of the International Association of Fire Fighters’ request for a permanent injunction prohibiting the Board of Directors from changing the fire district’s pension plan to a defined-contribution plan from a defined-benefit plan was denied Aug. 27, 2007, by County Circuit Court Judge Thea A. Sherry.

On Dec. 24, 2007, Sherry denied union employees’ motion for a new trial, but granted their motion for an injunction pending appeal that prohibits the board from making any changes to the district’s pension plan.

However, Sherry’s injunction excludes district employees hired after March 31, 2006.

Local 1889 filed the lawsuit in March 2006, just days after the Board of Directors voted on March 16, 2006, to adopt an amendment and two resolutions changing the pension plan from a defined-benefit plan to a defined-contribution plan. On March 30, 2006, Sherry issued a ruling granting a temporary restraining order prohibiting the board from taking any action to change the pension plan.

The defined-benefit plan was to end March 31, 2006, and the defined-contribution plan was to begin April 1, 2006, as a result of approval of Amendment 5 and the two resolutions.

However, the temporary restraining order stated that the board “shall maintain the current retirement and disability plan in full force and effect, without modification, as relates to the defined-benefit plan, while this temporary restraining order remains in effect or until such further time as designated by the court in granting further temporary, preliminary or permanent injunctive relief.”

In June 2006, the Board of Directors adopted Resolution 6-06, which states, in part, that “the board has deemed it to be in the best interest of plan participants that the district commit to fully fund the plan so that plan participants receive the full amount of their accrued benefits under the terms of the plan as of March 31, 2006.”

In September, Goffstein filed his appellate brief, which relied on these points:

• The trial court erred in ruling that Amendment No. 5 was valid because the MFPD had no authority to terminate the defined-benefit plan with respect to vested and other participants in that the Missouri Constitution, Article 1, Section 13, prohibits impairment to the obligation of contracts.

• The trial court erred in ruling that the MFPD directors can implement Amendment No. 5 terminating the defined-benefit plan with respect to all current employees because Amendment No. 5 fails to provide for the payment of earned and accrued benefits for vested employees and other participants subsequent to the termination of the defined-benefit plan in that the Missouri Constitution, Article 1, Section 13, prohibits the impairment of contracts.

• The trial court erred in ruling that there was no credible evidence that the directors of the MFPD breached their fiduciary duties to the plan participants in regard to the means and manner of the adoption of Amendment No. 5 and termination of the defined-benefit plan and the attempted establishment of a defined-contribution plan because the uncontroverted evidence clearly established that the directors committed serious fiduciary breaches in regard to the adoption of Amendment No. 5, when the MFPD undermined the financial soundness of the defined-benefit plan in that the MFPD failed to fund the defined-benefit plan, wrongfully transferred dedicated and restricted pension monies from the pension account to pay for expenses of the district and retained investment service providers with conflicts of interest and without competitive bids who acted to facilitate the defined-benefit plan termination to create a defined-contribution plan in violation of RSMo 105.662, RSMo 105.688, RSMo 321.200, RSMo 110.010, RSMo 110.070, RSMo 110.090, RSMo 321.600(4), RSMo 321.610, Article 1, Section 13 of the Missouri Constitution, and IRS Code Section 401(a)(12)(13).

Mathew Hoffman, an attorney representing the fire district, later filed his brief in response to Goffstein’s. In his brief, Hoffman relied on these points:

• Standard of review.

• The trial court properly ruled that Amendment 5 was valid because the Board of Directors of the MFPD had the authority to change the plan pursuant to the plan language and statutory authority.

• The trial court properly ruled that the MFPD could implement Amendment 5 and the decision did not violate federal law or the Missouri Constitution.

• The trial court properly ruled that the Board of Directors of the MFPD did not violate their fiduciary duty to the plan participants or violate Missouri law with the enactment of Amendment 5.

In court last week, Goffstein repeatedly alleged that the board committed “egregious fiduciary breaches” when it changed the district’s pension plan.

“The district’s lawyer created a formula that (board Chairman) Mr. (Aaron) Hilmer loved,” Goffstein said. “Why did he love it? Because he said you get no credit for all the time you worked here … That (circuit) court was wrong … Reverting $1 million out of pension is a clear fiduciary breach. They used it for operations.”

But attorney Paul Slocumb, representing Mehlville, countered that state law allows fire-district boards to manage and control pension funds.

“I know it seems unfair that there are firefighters who came to work with expectations,” he said. “But we have the right to amend or alter (the pension plan) at any time.”

Slocumb also noted that the board has put the pension plan funds in a money-market account, which resulted in an additional $2.2 million in investment income in 2007.