DENVER - U S WEST Inc. acted properly when it used plan assets to pay $30 million in pension plan expenses during the past 10 years, a company spokesman contends.
Interpretation of wording in the U S WEST plan document is the issue in a U.S. District Court lawsuit filed last month in Denver by retiree Clayton Unger of Cheyenne, Wyo. The suit alleges the plan document requires expenses be paid by the company, but the company has been paying plan expenses from plan assets for the past 10 years. Mr. Unger's suit seeks class-action status for 108,000 U S WEST retirees.
The suit claims that since 1984, U S WEST has violated its plan document by paying operating and administrative expenses from plan assets. The company was established in 1984 following the breakup of American Telephone & Telegraph Co.
The suit said the plan document clearly states "all expenses incurred by the (employee benefit) committee pertaining to the operation of (the U S WEST) pension plans ... were to be borne by U S WEST Inc. and its subsidiaries."
Specifically the plan stated: "The expenses of the (employee benefit) committee shall be borne by the company; the expenses of any departmental benefit committee at U S WEST in administering the plan shall be borne by the company and the expenses of each participating company committee or any departmental or local benefit committee, as applicable, shall be borne by each participating company, respectively."
The suit said that the company violated terms of the plan and the Employee Retirement Income Security Act in paying plan expenses from the pension trust between Jan. 1, 1984 and Aug. 4, 1994.
During the summer of 1994, U S WEST officials modified the plan to allow administrative expenses to be paid from plan assets retroactive to 1984, and the company's board of directors approved the change in August, the suit said.
The Aug. 5 board resolution removed any misunderstanding about how plan expenses are to be paid by amending the document stating: "Notwithstanding the preceding sentence, all expenses lawfully payable from the assets of the plan which are incurred or to be borne by the company either directly ... or indirectly ... shall be paid from such (plan) assets except to the extent the expenses are actually paid by the company."
According to the suit, the change of plan wording was a "vain attempt to legitimize pension plan fiduciaries' decade long practice in violation of ERISA."
Dick MacKnight, a U S WEST spokesman, said the changes in the plan were "coincidence" even though the resolution approved by the U S WEST board of directors modifying the plan language makes reference to "attorneys representing certain (plan) participants" suggesting apparent inconsistencies in plan language regarding payment of expenses.
He said the company "has the authority under plan documents and under the law to charge administrative expenses to the pension plan."
According to another section of the U S WEST plan "the expenses and costs of the company properly and actually incurred in the discharge of its responsibilities in the operation or administration of the assets of the plans and the trust ... may be a charge against and paid from one or more fee and expense accounts that may be established and maintained by the trustee to the extent directed by the company."
Curtis L. Kennedy, the Denver attorney representing the U S WEST retirees, said specific wording in the pension plan documents stipulated the company would pay operating and administrative costs of the plan. He said the company retroactively modified the plan document to "cover the mistakes of the past 10 years."
The suit seeks a court order requiring the company to restore the estimated $30 million to the plan as well as interest and unspecified additional compensation for loss of purchasing power during the past 10 years.
James J. Biundo, executive director-trust investment management at U S WEST, who oversees investment of the $8.5 billion plan, referred inquiries to Mr. MacKnight.
Mr. MacKnight said: "Whatever we did was a coincidence of timing that he (Mr. Kennedy) is exploiting for his own purposes. Our attorneys have said whatever we did we would have done anyway, and had nothing whatsoever to do directly or indirectly with this lawsuit. U S WEST has always acted properly and in accordance with the law in allocating costs associated with our pension plan."
An attorney with a major international pension consulting firm who asked not to be named said it is normal practice for pension plans to pay certain expenses from plan assets. These include premiums to the Pension Benefit Guaranty Corp. and fees for investment management, trusteeship and actuarial services.
"The issue has been whether certain expenses are proper and can be paid from plan assets or are they expenses of the employer. The question is whether the plan is being administered in accordance with its terms as spelled out in the plan documents," he said. "If they made a mistake by saying the employer pays the administrative expenses, they could have a problem. But most administrative expenses are properly payable by the plan and most plans pay these expenses out of plan assets."
Some expenses that are not properly charged to the plan include plan establishment expenses and termination expenses, he said.
In a prepared statement, U S WEST officials said "as far as we are concerned, we have authority under plan documents and under the law to charge administrative expenses to the pension plan."