Mehlville fire district attorney asks judge to clarify, reconsider injunction

By MIKE ANTHONY

The Mehlville Fire Protection District last week filed a motion asking a judge to clarify and reconsider her recent decision granting a preliminary injunction prohibiting the board from making any changes to the district’s pension plan.

Attorney Mathew Hoffman, who represents the Board of Directors, filed the motion June 8, asking St. Louis County Circuit Court Judge Thea A. Sherry to clarify and reconsider her May 25 ruling granting a request for the preliminary injunction by attorney John Goffstein, who represents Local 1889 of the International Association of Fire Fighters.

The preliminary injunction prohibits the board from making any changes to the pension plan and sets a hearing on the union’s request for permanent injunctive relief during the week of Oct. 2.

In separate votes, the Board of Directors voted 2-1 March 16 to adopt an amendment and two resolutions changing the district’s pension plan from a defined benefit plan to a defined contribution plan.

Board Chairman Aaron Hilmer and Treasurer Bonnie Stegman voted in favor of the motions. Secretary Dan Ottoline Sr. was opposed.

Within days of the board’s action, Local 1889 filed suit challenging the board’s action, and Sherry on March 30 issued a ruling granting a temporary restraining order granting a temporary restraining order prohibiting the board from taking any action to change the pension plan.

In her May 25 judgment granting the preliminary injunction, Sherry wrote that after the election of Hilmer and Stegman in April 2005, “the directors set out to terminate the defined benefit plan, ostensibly to reduce the cost to the city, but without regard to the effect on the plan participants. The assurances from defendants that there will be no reduction in benefits to the current retirees and vested members were unpersuasive.”

In his motion, Hoffman writes that Sherry’s order “is not sufficiently specific” per Missouri court rules “in that it refers to defendant as a ‘city,’ though defendant is a fire protection district.”

Hoffman further cites in his motion several other instances in which he contends Sherry’s order “is not sufficiently specific” per Missouri court rules. Among those instances are:

• Sherry’s order stated that pension plan assets may not be commingled with any other funds of the district, “yet no specific information, guidance or evidence has been provided in the order. In an effort to comply with this court’s order, defendants require clarity to properly address this issue.”

• Sherry’s order stated that the manner used to pass the amendment to the pension plan is indicative of a failure to fully, responsibly and reasonably consider the impact on all plan participants, “yet no specific information, guidance or evidence has been provided in the order. In an effort to comply with this court’s order, defendants require clarity to properly address these issues.”

• Sherry’s order did not cite Chapter 321 — Fire Protection Districts — of the Missouri Revised Statutes and did not address the powers vested in Mehlville’s Board of Directors. Sherry cited a federal Employee Retirement Income Security Act case, Hoffman wrote, that did not involve a fire protection district and did not invoke Chapter 321 of the Missouri Revised Statutes. The fire district attorney also noted that under federal law, governmental plans are exempt from Subchapter One of ERISA. “In an effort to comply with this court’s order, defendants require clarity to properly address these issues.”

Hoffman’s motion also notes that the Board of Directors last week adopted a resolution that states, “… Subject to court order, the board intends to distribute all plan assets pursuant to the plan termination as soon as practicable after the district contributes assets necessary to fund plan benefits under the terms of plan as of March 31, 2006.”

The resolution also states, “The board intends to seek a favorable determination letter from the Internal Revenue Service with respect to the termination of the plan and will distribute plan assets as soon as practicable after receipt of such letter and contribution by the district of assets necessary to fund plan benefits under the terms of the plan as of March 31, 2006.”

The Board of Directors voted 2-1 June 6 to adopt the resolution. Ottoline was opposed.

Before the vote was taken, Ottoline asked, “Didn’t the judge reject this?”

Hoffman said, “No. Well, what happened was during — to get into a little bit of specifics — during the hearing we did discuss a proposed Ordinance 6, which was actually an amendment to the plan. This is a resolution that just discusses the board’s intent. It’s not in any way an amendment to the actual pension plan as were the change in disability and the amendment that passed with regard to the change from the defined benefit plan to a defined contribution plan.”

The district’s actuary, Milliman, estimated the cost of terminating the pension plan to be more than $2 million, Hilmer said.

“I think we have the numbers from the actuary that show that the district may — might have to incur a debt of about $2.3 million, $2.1 (million),” he said. “That could vary with interest rates, obviously, if they change for the price to buy it. So if the board would pass this, that we’d be locking ourselves into somewhere over $2 million to do it, but that’s the worst-case scenario the actuary came up with that. So, I’d be comfortable with that.”

Goffstein told the Call a motion for clarification and reconsideration is one that is seldom filed and rarely granted.

“It couldn’t have been more clear,” he said of Sherry’s order granting the preliminary injunction, noting the judge ruled board members “violated their fiduciary obligation to the participants of the plan and that they have a fiduciary obligation. That’s pretty strong language — fiduciary — and I don’t know what could be unclear about that …”

Furthermore, Goffstein said he doesn’t believe the IRS will grant the district a favorable determination.

“They’re going to get hammered by the IRS and they’re going to get penalized …,” he said. “They’re going to be saying: ‘All right, even though we terminated this plan and we did it wrong and we screwed all the employees, now what we’re going to do is put the money back from the district revenues and purge ourselves of any contemptuous misconduct. So now let us terminate the plan.’ That’s what they’re going try to say. And we’re going to say: ‘That doesn’t begin to get it’ because on top that they’ve still got Internal Revenue Service code provisions to deal with. They have SEC (Securities and Exchange Commission) provisions to deal with, with the improper liquidation of this fund in violation of court orders.”

Local 1889 members “were stunned to learn that you were acting to liquidate the assets of the defined benefit plan prior to the effective date of the proposed termination of March 31, 2006 …,” Goffstein wrote in an April 4 written to Hilmer and Stegman.

“And, by the way, who’s going to pay for all the damage they did to the fund? They want the district to pay for it and we’re saying: ‘No.’ We’re saying: ‘After the district makes the plan and the employees whole, these directors should pay back the district for the damage they’ve done to the district and the retirement plan … They should pay for it,”’ Goffstein said Friday, noting, “That’s what they’ve got insurance for. Let their insurance companies go after them as far as I’m concerned. Why should the claims experience of the district have to go up because they’re acting irresponsibly and illegally. So, yes, we think they should pay for it. Why should the taxpayers be damaged by the illegal acts of Mr. Hilmer?”

But Hilmer told the Call that since 2003, more than $400,000 from the district’s general fund and ambulance fund has been transferred to the pension fund to cover shortfalls.

Employees do not contribute to the district’s pension fund, which is funded by tax dollars and the return on investments.

“I think what’s most staggering and I think what will amaze residents is that they will have to spend over $2 million to bail out a pension plan that’s been handing out checks in upwards of $700,000 to employees — employees who haven’t put a penny into it, and that could continue to go on while we run these huge deficits. That’s what we’re trying to fix, obviously,” he said.

Shortly after Hilmer and Stegman were elected in April 2005, five employees re-tired with four opting for lump-sum payouts — Chief Ray Haddock, $742,201; Assistant Chief John Schicke, $769,677; Capt. Robert Hargrave, $615,127; and Capt. Jerry Gibbar $567,809.

Asked how the more than $2 million will be funded, Hilmer said, “We’re going to have to dip into reserves for it.”

He also noted the district is seeking the favorable determination letter from the IRS on the advice of attorney Lori Jones of Thompson Coburn, the district’s pension adviser.

“… This is to show the court that we want to even go the extra step of having the IRS, i.e., the federal government, look at this change going on and before we would make the final change, that the IRS would give us a favorable determination letter,” Hilmer said.

In a related matter, Goffstein wrote in a May 30 letter to Hoffman, “Please advise if your client would have any interest in seeking a global settlement to the pending issues between the Mehlville Fire Protection District, the plaintiffs in our pending case and Local 1889 through the auspices of a formal mediation.”

Ottoline, who read Goffstein’s letter at the June 6 board meeting, said he wanted to pursue the proposal, but no action was taken by the board.