MINNEAPOLIS - Dissident pastors and laity of the Evangelical Lutheran Church in America, Minneapolis, with $2.7 billion in defined contribution plan assets, won the first skirmish in a war against social investing and their mother church.
On Feb. 7, Judge Harry Seymour Crump of Minneapolis District Court denied a motion for summary judgment brought by the church, seeking dismissal of a class-action suit filed against the fund. The judge's order cannot be appealed.
On Sept. 28, an alliance of Lutheran pension plan participants from 17 states, known as the PENSION DEFENSE FUND, filed the class-action suit against the ELCA in Minnesota District Court, claiming the plan was in breach of the contract it established with each plan participant under the terms of the Employee Retirement Income Security Act (Pensions & Investments, Oct. 4).
The pastors and laity claimed the fund violated its fiduciary responsibility by investing with social goals in mind, rather than the best interests of the participants.
The plaintiffs allege socio-political divestment policies lower returns, increase risk, raise administrative costs and diminish the defined contribution plan accounts of Lutheran pastors, lay church workers and lay congregation members.
The group took exception to the South Africa screens the pension fund administration imposed on certain investment options within the defined contribution plan.
Two additional counts sought to make the ELCA drop social investment policies in the future. Judge Crump declared the two counts moot in his judgment, since the Executive Committee of the ELCA voted Nov. 12 to eliminate the use of a South Africa screen on the plan's Social Purpose funds.
The Lutheran pastors' and laity group filed a similar suit in 1991, seeking a recision of contract and distribution of assets to all plan 44,000 participants. The case was dismissed and the dismissal upheld on appeal (P&I, Jan. 25, 1993).
The main thrust of the current case is whether the contracts between the Board of Pensions and each of the 30 individual plaintiffs named in the class-action suit have been breached. The pastors and laity are seeking to have the total balance in each account returned to the participant, rather than remain under the management of the ELCA pension board.
Lynn E. Basich, attorney for the plaintiffs, said "By denying defendants' motions for summary judgment, Judge Crump was signifying that he agreed with the plaintiffs that in this pension dispute, there are issues of fact which can only be determined at a trial on the merits of the case." Ms. Basich added Judge Crump drew "special attention" in his written memorandum to the ELCA's alleged breach of faith in promising participants that it would manage pension fund assets under the fiduciary provisions of ERISA for the sole benefit of participants, but by later adding an additional, social purpose to fund investments. The judge's memorandum, with its emphasis on fiduciary violations, said Ms. Basich, "puts the beam of the spotlight exactly where it should be."
Another attorney for the plaintiffs, Robert C. Bell, of the Minneapolis law firm of Peterson, Bell, Converse and Jensen, said the lawsuit will be amended soon to include more plan participants.
Pension fund officials declined to comment on the case, referring inquiries to the ELCA's attorney, John Harris of the Minneapolis law firm, Faegre & Benson.
Mr. Harris said: "We've been down this road a few times now with these people, and we do not see any merit in their case. This would only be a test case of social investment if the ELCA Board had applied screens to all of the funds in the defined contribution plan without an unscreened fund option, and if performance had been affected by the investment policy.
"What we have here are some people who want to get control of their accounts and others who have political agendas with the church and are grabbing at the pension as a way to make waves. If these people didn't have a basic doctrinal difference with the ELCA, they wouldn't be targeting the pension fund like this."
Mr. Harris said he and the ELCA were not particularly surprised by Judge Crump's dismissal of the summary judgment request, because the ELCA has not even filed an answer to the Sept. 28 class-action suit.
Mr. Harris said the ELCA will file an answer to the suit by the end of February, and both sides will begin to gather facts to support their cases. "What we now do is go and deal with the facts, pin them down, and at that point, it may be appropriate to ask for another summary judgment. It's very premature to say that this case will ever be going to court," he added.
