Employees sue hospital over pension plan
Fifteen War Memorial Hospital employees are battling the hospital over a $675,000 surplus that has accumulated in a defined benefits pension plan adopted in 1972 to provide retirement benefits.
They filed a lawsuit in Morgan County Circuit Court on Tuesday, June 26, seeking control of the money.
Earlier, Morgan County War Memorial Hospital tried to gain the surplus through a declaratory judgment in U. S. District Court, but this was dismissed by a federal judge on June 25.
Hospital officials want to use the money to help build a new hospital, but the employees say it should be distributed among them as part of their retirement benefits.
The 15 plaintiffs in the lawsuit are Jennifer Baker, Sharon Hendershot, Janet Horner, Barbara Johnson, Terry Kesecker, Carol Layton, Tanya Manley, Helen Miller, Christine Mullen, Ruth Smith, Bernice Stotler, Dee Ann Stotler, Linda Stotler, Nancy Waugh and Barbara Yost.
They are all represented by Attorney Lawrence Schultz, except for Kesecker, whose attorney is Richard McCune, Jr.
Named as defendants in the suit are the War Memorial Hospital board of directors, Hospital Administrator John Borg and Valley Health System, Inc., which manages the hospital. The facility is owned by the Morgan County Commissioners.
The employees are also asking for more than $1 million in damages, plus interests, costs and attorney fees.
The hospital maintains that the surplus assets — money above the accrued benefits due the employees — were never meant to be distributed, said Attorney Richard Gay, who represents the hospital.
Plan dates to 1972
War Memorial Hospital started the defined benefits pension plan for eligible employees in 1972 and paid into annuities overseen by an insurance company, which set the payment amounts.
Employees made no financial contributions to the retirement plan. Retirement benefits were based on a formula that included an employee's length of service and their income.
The hospital declared the pension plan inactive and froze the assets in 1987. A new retirement plan, to which employees contribute, was started at that point.
According to the employees' lawsuit, the assets from the 1972 pension plan totaled $817,262 and its obligations to participants were $142,911, as of September, 2005. Surplus funds amounted to $674,351.
The lawsuit claims that from the start, pension plan rules specified surplus funds could not go to War Memorial Hospital and that the plan could not be amended to allow surplus funds to revert to the hospital. Surplus money could, however, be distributed to the plan's participants, the lawsuit maintains.
The lawsuit states that in December 2005, the hospital offered to terminate the plan and immediately pay the employees their retirement benefits if they waived their rights to the surplus funds. The women rejected the offer and demanded that the plan be terminated with all of the plan's funds paid to them.
Federal case dismissed
Last year, War Memorial Hospital sought a declaratory judgment from U.S. District Court, asking that the plan be terminated with $142,911 paid to the active participants and the surplus of $674,351 paid to the hospital.
U.S. District Judge John Preston Bailey dismissed the federal case due to lack of jurisdiction. Judge Bailey noted in his findings that the pension plan still existed, although membership was frozen in 1987.
Bailey also stated that the pension plan allowed "for the reversion of any excess assets to the plan participants."
He wrote that there were about 73 employees involved in the old plan and that about 57 employees had already taken their retirement benefits.
At least one of the 15 employee plaintiffs has stopped working at the hospital, but can't get her retirement benefits because she won't waive rights to the surplus funds, according to the lawsuit.
The suit also alleges breach of fiduciary duty and petitions for a court order to terminate the plan and disperse the surplus money to the employees.
The plaintiffs claim that the hospital board and Administrator Borg failed in their duty to preserve and defend the assets and interests of the plan participants, said Attorney Schultz.
The hospital employees have asked for a jury trial.
All of the plaintiffs are long-term employees of the hospital and some are close to retirement. They are the administrative backbone of the hospital, Schultz said.
"Some of these women have given their heart and soul to this hospital over the years. To say they're disappointed at being treated this way is an understatement," he said.
According to a tax consultant, the defined benefits plan and the IRS Code, hospital officials felt the surplus wasn't payable to anyone but the hospital, said Bill Locke, chairman of the War Memorial board of directors.
Locke didn't think anyone expected there would ever be a large surplus when the pension plan was frozen in 1987. The hospital was in poor financial shape from the late 1970s to the mid-1980s, he noted.
Locke said it was great that the defined benefits plan survived to this point. The plan had been well managed while many similar plans were closed due to poor management.
The plan made money by being well invested, said Gay. The real issue is what is a "defined benefit" and who is entitled to the money that is more than the amount due the employees for their retirement, he said.
"It's always been the intention of the hospital to give them what they're due," Gay said.
He maintained the wording in the plan gave the hospital the option of paying the surplus to participants, but it wasn't required.
If any of the employees are eligible for retirement, they will not be denied their benefits, Locke said.
On December 5, 2005, the employees were offered their accrued retirement benefits as a lump sum distribution, an annuity or a tax-free rollover of the lump sum payment made to an IRA upon termination of the plan.
They rejected the hospital proposal and claimed ownership in all plan money, including the surplus assets, according to the hospital's complaint that was dismissed in federal court.
As of Monday morning, War Memorial Hospital officials had not yet been served with the documents for the employees' lawsuit, Gay said. After the papers are served, they will have 30 days to submit a legal response.