DENVER -- A federal court judge has approved a settlement requiring U S WEST Inc. to return $8 million in defined benefit plan assets the company used to pay plan administrative costs.
Retiree Clayton Unger and a class of other plan participants and beneficiaries had sued U S WEST, Englewood, Colo., four years ago, claiming the company had charged the plan an estimated $30 million in administrative fees that should have been paid by the company's operating revenues.
Among the challenged expenses were attorneys' fees stemming from an earlier case brought by plan participants against the company and expenses not historically paid by the pension plan such as payroll and travel expenses of U S WEST employees, said Curtis L. Kennedy, the Denver attorney for the class.
Plan documents at the time allowed the company to charge the pension plan only for such things as investment manager fees, trustee fees, plan-related expenses of employees working for the company's investment management group and actuarial fees. (Several months before the Unger suit was filed, U S WEST modified the plan documents.)
U S WEST contended the company had not breached its fiduciary duty and that the expenses were appropriate under federal law, including the Employee Retirement Income Security Act, said Beth Kiovski, associate general counsel for U S WEST.
"Even though all of the expenses were allowable under ERISA, the pension plan was more strict than ERISA," Ms. Kiovski said.
Under the settlement approved Dec. 21 by U.S. District Court Judge Walker D. Miller sitting in the District of Colorado, U S WEST from now on will be able to charge the pension plan assets all expenses allowable under federal law, she said.
Although the original suit claimed $30 million, the parties settled the case for less. After examining pension plan records, Mr. Kennedy said, he determined that only about $10 million in charged expenses were in dispute, with $2 million of that sum "questionable."
But this settlement does not end all of U S WEST's pension plan litigation, said Mr. Kennedy, a sole practitioner who has made a career of suing U S WEST on behalf of retirees and plan participants. (He has brought more than 45 lawsuits against the regional phone company during his 17-year legal career. All have been successful, leading to settlements or trial wins.)
Mr. Kennedy also is representing plan participants who contend the company improperly took $55.8 million from the pension plan and put it into a post-retirement health-care trust.
U S WEST already has agreed not to oppose a move to add the claim to an existing federal court lawsuit on a related matter, Ms. Kiovski said. But, she added, transferring the money did not violate federal law because ERISA and the tax code allow a company to use pension plan surplus to pay for retirees' post-retirement health benefits under certain circumstances. The $11.7 billion pension plan is overfunded, in that it needs about $11 billion to pay out obligations, Ms. Kiovski said.
But the plan documents prohibited the use of plan assets for anything other than pension and death benefits, Ms. Kiovski said.
So before making the Dec. 15, 1998, transfer, U S WEST amended the documents to bring them in line with federal law, she said, including shortening the vesting period to one year from three.
The real issue is whether a plan sponsor should be allowed to change the plan terms to allow it to take actions that had been prohibited when the plan was set up, Mr. Kennedy said.
"If they can, the prior language would be meaningless," he said.
That issue is currently before the U.S. Supreme Court in the case of Jacobson vs. Hughes Aircraft, and Mr. Kennedy said he will not seek court permission to add the new cause of action until the high court makes a determination in that case.
