$90 Million Missing -- “Embezzlement and fraud,” cry AME Pastors in Pension Lawsuit

Memphis, TN Count IX of this class-action ERISA lawsuit, alleges the “Tort of Outrage.” That, if nothing else, captures the flavor of the case.

In re: AME Church Employee Retirement Fund Litigation describes a complicated and long-running conspiracy to loot the Ministerial Annuity Plan of the African Methodist Episcopal Church (the “Plan”) of assets. Much of the injury to retiring pastors and other church employees was the result of Plan fiduciaries’ failure to exercise even the minimal oversight that might have identified and stopped the scheme.

The pain was substantial. Between June 2021 and January 2022, retirees discovered that their accounts were worth roughly a third of what they had been told. According to the Complaint, Rev. Pearce Ewing, for example, was forced to make ends meet by driving large commercial trucks at night.

The threshold legal question is whether the retirement plan was covered by ERISA. Even if not, Tennessee state law counts, (including the Tort of Outrage) may provide some financial relief to the victims.

Bad news on departure of long-serving Executive Director     

      
The Rev. Dr. Jerome V. Harris had served as the Executive Director of the AMEC Department of Retirement Services from 2000 until June 2021. (The African Methodist Episcopal Church (AMEC) was the Plan’s sponsor). When Harris left in 2021, Rev. James F. Miller assumed that role. On January 31, 2022, he confirmed that the Plan had lost more than $90 million, with the exact amount unknown.

No one connected with the church except Harris knew where the money and Plan records went. The office of the Executive Director had allegedly been emptied, with nothing in the office cabinets but “empty files and paperclips.”

Embezzlement, speculative investments and secrecy   

   
Among the Complaint’s allegations:

• Harris acted entirely without the knowledge and consent of the Plan sponsor, largely through a network of interrelated corporate entities, created by him for the purpose of maintaining secrecy;
• He made payments and loans to himself and other individuals;
• He deposited Plan assets into his own personal checking account;
• Harris also invested millions of dollars in high-risk investments; and
• He misrepresented Plan financial information to participants and the Plan sponsor.

Approximately $8-9 million of Harris’s personal funds have reportedly been frozen by the federal government as part of its investigation.

The scheme apparently went on for 20 years, and during that time, Plan fiduciaries who were charged with acting in the best interest of participants and beneficiaries exercised little to no oversight. According to the Complaint:

“The mismanagement and manipulation of the Plan by Defendant Harris and his coconspirators was so extensive and so prolonged that a properly qualified auditing firm could not have failed to notice, while conducting a good faith audit of the Plan’s financial health, that the Plan was being illegally and fraudulently looted.”

Those fiduciaries include Harris, the Plan sponsor, the Council of Bishops, and the collection of outside entities who were at least in theory providing services to the Plan.

But does ERISA apply?

Church plans are in a unique position under ERISA. They are exempt from the rules for pension plans, including funding, vesting, insurance, and fiduciary obligations. The exemption allows (but does not require) plans established or maintained by a church to escape being subject to ERISA requirements. The question in this case is whether the Plan, nonetheless, voluntarily adopted ERISA standards.

On its first page, the Plan’s Summary Plan Description (an official plan document) declares that “The Plan is subject to federal laws, such as ERISA.” Other written communications to the Church’s clergy and other employees, allegedly expressly state that the Plan is an ERISA plan, and is to be operated in full compliance with ERISA. Other Plan documents are ambiguous.

Fallback state law position          

The Complaint pleads in the alternative that the provisions of Tennessee state law apply to this situation. ERISA is deeply rooted in the common law of trusts, which requires that those entrusted with the task of keeping money or other assets safe for the use of another do so with the beneficiaries’ interests first in mind.

The particular statutes in issue are:

• The Tennessee Uniform Trust Code; and
• The Uniform Prudent Investor Act, as adopted by Tennessee.

The remedies under these laws are not necessarily the same as those available under ERISA.

Clearly, however, the losses suffered by those who served the spiritual needs of their congregations should not go unaddressed. The AMEC has committed to restoring the full initial investment plus interest to each retirement plan participant.