MADISON, Wisc. (CN) - A hospital system is looking to recoup its losses after an $82 million settlement by going after the designers of its pension plan.
Meriter Health Services sued more than a dozen attorneys, pension consultants and insurers it blames for an illegal pension plan that necessitated a class action settlement.
According to the Jan. 6 lawsuit in Dane County Court, Towers Perrin Forster & Crosby, a Pennsylvania actuarial firm that has since undergone a merger, designed the faulty plan; Thomas Hoffner, an attorney whose firm eventually became Godfrey & Kahn, reviewed the plan as Meriter's benefits counsel from 1986 to 2011; and consultant Gordon Enderle reviewed the plan and designed its reconstruction in 2003.
"The primary cause of the class action being filed against Meriter was the faulty plan design and substandard representations by Towers Perrin, Enderle and Hoffner," the complaint states.
Meriter was formed in 1986 by a merger of two hospitals with several employee pension plans, according to the complaint.
In the mid-1980s, defined benefit pension plans were being dropped in favor of cash balance and defined contribution plans, leaving Towers Perrin in "adverse financial conditions," according to the complaint. When the firm designed Meriter's plan, its own bottom line took precedence over customer benefit, according to the lawsuit.
"Towers Perrin developed a cash balance design that looked like a popular [defined contribution] plan but operated as a [defined balance] plan to secure the continued need for pension and actuarial services," the complaint states.
At the time, there were fewer than 30 cash balance plans in existence, none of which had been approved by the IRS, in contrast to the thousands of defined benefit and defined contribution plans, according to the complaint.
"Towers Perrin did not think through the many risks of its novel plan design, many of which came to fruition when such plans were interpreted by the IRS and the courts," Meriter claims.
Meriter says that Hoffner and his supervisor failed to tell it about his lack of experience reviewing pension plans of this size and type, an omission that Meriter says led it to improperly trust Hoffner.
"Hoffner failed to meet the standard of practice, not only in his advice or lack of advice to Meriter, but also in failing to serve as a check on Towers Perrin's recommendations and advice regarding plan issues," the complaint states. "Hoffner relied on Towers Perrin when he should have been an independent advisor checking on their work product."
As a result, Meriter says, it was left with one plan option from Towers Perrin with no competent legal counsel advising it of risks and benefits or that the plan was an "untested, novel design."
By the time Enderle was hired in 2001, the plan costs were much higher than anticipated, necessitating a reconstruction. "Enderle realized that the plan was a mess when he came aboard and that one reason was Hoffner," the complaint states.
Meriter claims that Enderle kept his opinions to himself, which it calls a breach of fiduciary duty. Once Enderle and Hoffner created an amended plan, they exchanged drafts over the years but failed to officially implement it, the company says.
"Meriter was assured by Hoffner that not having a written, executed plan document that memorialized the January 1, 2003 design changes was not a big deal and not a pressing issue," the complaint states. In reality, Meriter says, this failure cost it $40 million to $60 million in damages.
When the amended plan was completed in 2009, Hoffner asked the IRS to give it a favorable determination, to which it responded with several necessary plan changes, the complaint states.
It adds: "Hoffner advised Meriter that it was impossible to comply with the IRS's request and that Meriter should withdraw its request for a determination from the IRS hoping to get a better reviewer next time; someone that better understood the law like [sic] he did."
The class action lawsuit followed.
Meriter also sued MMIC Insurance Co. of Minnesota and Federal Insurance Co. of New Jersey, claiming their refusal to pay defense costs and indemnify cost it at least $3 million.
It seeks damages for professional negligence by the attorneys and actuaries and their firms, breach of fiduciary duty, negligent supervision and breach of insurance contract.
Its lead counsel is J. Ric Gass, with Gass Weber Mullins, of Milwaukee.
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