Benefits January 21, 2005

Milwaukee Officials Inch Closer to Pension Litigation

January 21, 2005 (PLANSPONSOR.com) - Milwaukee County officials are close to filing a lawsuit over allegations that lawyers and actuaries didn't properly warn lawmakers about the massive costs of a sweetened pension plan put in place in 2000.
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County supervisors have okayed authorizing their lawyers to investigate the viability of potential litigation against the pension plan’s architects, the Milwaukee Journal Sentinel reported.

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Although officials publicly disclosed no specific targets for the lawsuits, the newspaper reported that officials are considering taking action against Mercer Human Resources Consulting and the law firm of Reinhart Boerner Van Deuren. Mercer provided the county with cost estimates for the sweetened 2000 deal, the newspaper said. The head of Mercer’s office in Milwaukee, Paul Patt, told the Journal Sentinel that the firm has heard nothing of being targeted by the county.

Local lawmakers complain that they didn’t know how big of an impact the changes would have. “Mistaken or incomplete information was provided” on potential costs of the pension upgrades, supervisors said a resolution authorizing investigation into possible litigation. The enhancements “resulted in enormous costs to the (pension system), which were not recognized or fully understood at the time they were granted.”

The 2000 deal added a new pension option known as a backdrop – the lump-sum payments that retirees can take in addition to their monthly pension check. Hundreds of retirees have collected six-figure backdrops; the top payout so far is $684,000, according to the newspaper. (See New Milwaukee County Exec Attacks Inflated Pensions ).

The deal has had some notable consequences, the newspaper report said:

  • The retirement system has had to seek tens of millions of taxpayer dollars to make the fund whole since the 2000 deal. The 2000 deal has cost the pension fund $75 million in four years.
  • This month, the county expects to pay out a record $16 million in backdrop checks to exiting employees.
  • T he pension deal led to an exodus of county employees that has at times stretched services to the limit. Last year, more than 750 county workers retired, triple the norm.
  • For two years, the county has focused on defending itself against lawsuits by employees and retirees who were left out of various aspects of the pension deal, or who had some of the sweeteners taken away.

County lawyers said they are still studying whether the county could make a case against figures such as former County Executive F. Thomas Ament, former Personnel Director Gary Dobbert and other top officials who crafted the plan. Dobbert served jail time in 2004 on convictions related to lying about getting an actuarial study of the new plan (See WI Pension Calculation Designer Sentenced to Jail ),

Compliance January 20, 2005

Court: Disability Plan Participant's Work in Prison Does Not Disqualify Him

January 20, 2005 (PLANSPONSOR.com) - Reversing a lower court's ruling, the US 6th Circuit Court of Appeals has ruled that a long-term disability benefit plan participant who worked in prison is still eligible for such benefits.
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>Circuit Judge Boyce Martin Jr. ruled that the plan administrator – Metropolitan Life Insurance Co. – acted arbitrarily and capriciously in terminating the benefits of Donald Dover because the inmate’s work in prison did not indicate that he was able to perform duties of a gainful occupation, according to BNA.

>Dover, an employee of IBM, began receiving benefits in 1994 due to a disability, a result of multiple psychiatric disorders. In May 1997, he was arrested for writing bad checks, as well as for loan application fraud, and was sentenced to 78 months in prison. While incarcerated, Dover was employed for a short time in the prison’s machine shop and then as a janitor.

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>Metropolitan Life informed Dover in 2000 that it was terminating his benefits retroactive to 1998, when Dover began working in the prison, citing his employment as reason for the discontinuation of benefits. When he was released in May 2001, Dover took the company to court in the US District Court for the Eastern District of Michigan, alleging that the company acted unreasonably is terminating the benefits. The court ruled that the insurance provider was correct in denying Dover benefits for the time that he was employed, but awarded him benefits effective May 2001, the date he was released.

>On appeal, the appeals court reversed the lower court’s ruling, saying that the termination was not a rational act. “In our view, Dover’s limited work as an inmate simply does not indicate that he was able to perform the duties of a gainful occupation ‘for which [he was] reasonably fit by [his] education, training, or experience,’ ” Martin wrote, according to BNA.

“[W]e simply do not think that this type of highly structured and supervised work in a prison, dramatically limited by Dover’s continuing treatments for his mental disability, could rationally by considered sufficient evidence of an ability to perform the duties of gainful employment,” Martin added. In its ruling, the court granted Dover retroactive benefits starting May 1, 1998.

>In her dissenting opinion in the 2-1 case, Judge Julia Gibbons argued that the only issue before the court was whether the district court should have retroactively reinstated the benefits to when Dover was released from prison.

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