Chapter 8: Hoping the Lord Will Provide: An Update on Church Plans, Reckless Investing and the AME Retirement Plan Collapse

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Book Chapter

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Matthew Bender & Company, Inc





As of June, 2023 six class action suits were filed against the African Methodist Episcopal Church1 Ministerial Retirement Annuity Plan and several other defendants alleging self-dealing, and risky and imprudent management of the plan’s assets which resulted in a loss to the plan of more than $90 million out of an estimated $130 million. The plan’s own documents are in conflict with respect to the threshold question of ERISA governance.2 The principal plan document asserts that the plan is to be construed and enforced consistent with the requirements of ERISA. However, following consolidation of all cases in the district court of the Western District of Tennessee, the district court determined that the AME plan was not regulated by ERISA. The surviving claims of negligence, breach of fiduciary duty, conversion and civil conspiracy will all be resolved with respect to Tennessee law.3

The now consolidated complaints allege that for about two decades, Rev. Dr. Jerome Harris and several accounting and service providers (most prominently Symetra Life Ins. Co. which held about $49.5 million of annuity funds as of December 2001 and The Newport Group which was the plan’s third party administrator) made a series of extremely risky investment decisions which resulted in catastrophic losses to the plan. In March of 2022 AME church leaders suspended all payments to then-current retirees following discovery of “financial irregularities.”4 Reverend Harris, it appears, had sole responsibility for managing the plan’s assets and he did so with little or no oversight from the plan’s retirement fund trustees, the church or its bishops. Best estimates are that about 5000 pastors and church employees have been affected by the suspension of payments.5

Over the years that Reverend Harris managed the plan’s assets, he regularly published reports describing the state of the plan’s holdings and asserted that the plan followed a “conservative investment strategy.”6 Following an audit in 2021 (apparently triggered by Reverend Harris’ retirement), the church could only account for about $38 million of the $130 million in assets the plan allegedly managed.7 Reverend Harris was replaced by Reverend James F. Miller who reported in January 2022 that “the Office of the Executive Director had been emptied with nothing in the office cabinets but ‘empty files and paperclips,’ not even the most recent version of the Plan document.”8 With no hint of irony Reverend Miller added: “never again will we allow one person to count the money.”9

More than 40 years since the enactment of ERISA which was consciously designed to reduce pension plan default risk through regular monitoring by both the Department of Labor and the Internal Revenue Service, this AME litigation once again raises questions about the wisdom of ERISA’s Church plan exemption. Numerous commentators have worried about the consequences for employees of religious employers who operate in an essentially federal regulation free zone for these kinds of plans.10 Congress’ reluctance to wade into oversight of religious institutions is not hard to understand.11 However, is it not surprising that religious officials frequently lack the investing skills required to effectively manage hundreds of millions of dollars (this is the charitable version of events in the AME case). Religiously affiliated actors appear to be attracted to financial self-dealing schemes of the same sort that tempt non-religious actors (this is the less charitable interpretation of events in the ongoing AME case).

If the AME litigation were an outlier it might make sense to conclude that Congress was wise to avoid the kinds of regulation that lead to distasteful entanglements between church and state.12 The truth is that the litigation involving the African Methodist Episcopal Church is just the latest in a line of cases in which plaintiffs/employees/retirees of religious institutions are the victims of plan default—usually at a stage in life in which retooling, moving and pivoting toward new career opportunities are not realistic. There can be no question that since at least the Supreme Court’s unanimous decision in Advocate Health13 participants in church sponsored retirement plans have faced greater default risk than comparable participants in non-church plans.14

This paper focuses on the AME case and proceeds as follows: in Part II I survey the status of several of the major church plan default cases which, like the AME case described in this Introduction, left thousands of generally older participants without promised retirement income. Absent effective state law remedies and a defendant with substantial resources, plaintiff-retirees typically have little recourse. In Part III I return to the AME case and examine the details of Tennessee state law with respect to breach of fiduciary duty, negligence, conversion and civil conspiracy. The rules in Tennessee will determine whether or not the pastor plaintiffs will recover any of their promised retirement payments and, if so, how much. A mastery of applicable state law in religion plan default cases, I argue, will be absolutely essential going forward as most church plans, even those that ritually invoke ERISA as the AME plan does, will be unable to take advantage of the ERISA causes of action designed to remedy negligence and/or misconduct. Finally, Part IV focuses on the future of church plan defaults and evaluates the need for greater oversight of these plans at the state level in light of the federal government’s longstanding abdication of regulatory responsibility in this area.

2023 NYU Review of Employee Benefits § 8.01 (2024)



  • CHAPTER 8Hoping the Lord Will Provide: An Update on Church Plans, Reckless Investing and the AME Retirement Plan Collapse
    • § 8.01 INTRODUCTION
      • [1]The St. Clare’s Litigation, New York
      • [2]The St. Joseph’s Litigation, Rhode Island
      • [1]Negligence
      • [2]Breach of Fiduciary Duty
      • [3]Conversion
      • [4]Civil Conspiracy
      • [1]A Mini ERISA State Regime and Political Options
      • [2]Negligence and Breach of Fiduciary Duty Claims
    • § 8.05 CONCLUSION

2023 NYU Review of Employee Benefits CHAPTER 8(2024)

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