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GEROSA v. SAVASTA

March 13, 2002

ALFRED G. GEROSA, JOSEPH MITRIONE, JOHN J. PYLILO, PAUL M. MANTIA, ANGELO SAGNELLI, BERT GALLO, AND JOHN PAGLIUCA, TRUSTEES, CEMENT MASONS' LOCAL 780 PENSION FUND, PLAINTIFFS,
V.
NEIL J. SAVASTA, MARK SCHOR, AND SAVASTA AND COMPANY, INC., DEFENDANTS.



The opinion of the court was delivered by: Alvin K. Hellerstein, U.S.D.J.:

OPINION AND ORDER DENYING MOTION TO DISMISS

Plaintiffs, the trustees of an employee benefit fund, sue the fund's actuary to recover damages caused by the actuary's negligence. The actuary, in analyzing and reporting on the fund's actual and expected experience, reported that the fund was over-funded and recommended to the trustees that they increase benefits payable to participants and beneficiaries. A year later, the actuary reported that it had erred, that the fund actually had been underfunded, and that the data that it had used to arrive at its erroneous report and recommendation could not be located. The trustees then filed this lawsuit to recover the substantial damage caused to the fund by the actuary's negligence.

I am asked to decide whether the trustees' lawsuit is governed by federal law, cognizable only in a federal district court, or whether it is governed by state law. I hold that the governing law is federal, that the federal district courts have exclusive jurisdiction to hear it, and that plaintiff, with an amendment, is able to state a legally sufficient claim for relief under ERISA.*fn1

I am well aware that my opinion does not follow the trend of recent decisions of the United States Supreme Court. I come to my decision because I believe that ERISA requires it, because the fact pattern in the case before me makes it distinguishable from the Supreme Court decisions, and because it conforms to the reasoning of an earlier decision of the Second Circuit Court of Appeals.

I. The Allegations of the Complaint

Plaintiffs are trustees of a multi-employer, defined benefit pension plan, the Cement Masons Local 780 Pension Fund. As trustees, they engaged defendant, Savasta and Company, Inc., to perform actuarial services for the plan. Defendant, after performing actuarial studies, expressed the opinions that the plan was over-funded, that it had been so for several years, and that the benefits payable to its participants and beneficiaries should therefore be increased. Defendant's written benefit study report found that the plan's vested benefit fund ratio was 128% as of December 31, 1994, 110.8% as of December 31, 1995, and 110% as of December 31, 1996. Defendant's report calculated that the increase in defined benefits that it recommended would leave the fund with a benefit fund ratio which still exceeded 100%.

Plaintiffs accepted the recommendation on December 18, 1997, and increased the defined benefits of the beneficiaries. Defendant's post-action review found that the plan remained with an overfunded ratio of 102.4 %.

In fact, however, the plan was under-funded, and the increase in defined benefits that the trustees put into effect, relying on defendant's report and recommendation, caused the underfunding to be substantially larger. As of the year ended December 31, 1998, defendant determined that the plan's vested benefit fund ratio was not 102.4%, as it had calculated the year before, but only 71.3 %. Defendant now expressed its actuarial opinion that "the assets of the fund are not sufficient to cover the cost of all vested benefits . . . [imposing] a further obligation on the part of the Contributing Employers in the event of a plan termination."

Plaintiffs sued, alleging that defendant was negligent and, as a result, plaintiffs "anticipate the fund will not be able to afford" the pension obligations that will inexorably become due, and that they are "forced to assume significant increases in liabilities that the Pension Fund anticipates that it will not be able to afford." The complaint alleges that defendant has failed to supply the data upon which its actuarial reports relied, claiming that they were lost. Plaintiffs allege that defendant violated its duties as plan actuary, and that the fund of which plaintiffs are fiduciaries suffered damage as a result of defendant's negligence.

Plaintiffs allege three claims to recover from defendant's malpractice: (1) a federal claim under ERISA,*fn2 and state claims for (2) promissory estoppel, and (3) breach of contract. Defendants move to dismiss plaintiffs' claims pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing: (1) plaintiffs failed to plead an actual, concrete injury, (2) plaintiffs' ERISA claim is not authorized by the terms of the Act, and (3) that plaintiffs state law contract claims are preempted by ERISA.

With regard to defendant's first argument, Plaintiffs represent that they are able to prove actual, quantifiable damage: the amount necessary to restore the plan on an actuarial basis to a properly funded basis. I therefore hold that Plaintiffs can satisfy the liberal standards for amending a pleading at the inception of a case, and I grant them leave to amend in this respect. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).

As thus amended, I hold that plaintiffs' claim for relief under ERISA is legally sufficient and, in consequence, that plaintiffs' second and third claims for relief are preempted and, thus, dismissed.*fn3

II. The Relevant Statutory Provisions and the Congressional Purpose

The Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq., comprehensively regulates employee benefit plans established by labor and management for the benefit of employees. To accomplish this end, the Act defines the actors and concepts central to the formation and management of benefit plans, sets out the duties and responsibilities of those actors, and provides rights to sue and an exclusive federal forum. The relevant provisions are set out below.

A. Fiduciaries, Accountants and Actuaries

Section 3(21)(A) of ERISA, 29 U.S.C. § 1002(21)(A), defines a "fiduciary "of an ERISA plan as a party who:

(i) exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) . . . renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan . . . or (iii) . . . has discretionary authority or discretionary responsibility in the administration of such plan.

The instrument that creates an employee benefit plan is required to provide for one or more named fiduciaries who jointly or severally are to have the authority to control and manage the operation and administration of the plan and to employ people to give them advice. ERISA § 402, 29 U.S.C. § 1102. The fiduciaries are to discharge their duties solely in the interest of the participants and beneficiaries, without conflicting transactions, and with the "care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man . . . would use. . . ." Id. §§ 404, 406, 29 U.S.C. § 1104, 1006. They may be liable for each other's breaches of fiduciary duty if they know of them and fail to make reasonable efforts to remedy the breach, or if they knowingly participate in, or conceal, the breach. Id. § 405, 29 U.S.C. § 1105. Fiduciaries who commit breaches of their duties "shall be personally liable to make good" any losses and to restore "any profits of such fiduciary," and shall be subject to other equitable or remedial relief." Id. § 409, 29 U.S.C. § 1109.

One of ERISA's central purposes was to assure full and proper disclosure with respect to the "establishment, operation, and administration" of employee benefit plans. ERISA § 2, 29 U.S.C. § 1001. To that end, section 103 of ERISA, 29 U.S.C. § 1023, provides detailed requirements governing such disclosures. "Independent qualified public accountants" and "enrolled actuaries" are to be engaged, and annual reports are to be filed containing their statements and opinions. Id. §§ 103(a)(3)(A), (a)(4)(A), 29 U.S.C. § 103(a)(3)(A), (a)(4)(A). As to the "enrolled actuary," the opinion to be contained in the Annual Report is to the effect that the matters reported on "are in the aggregate reasonably related to the experience of the plan and to reasonable expectations," and that they "represent his best estimate of anticipated experience under the plan." Id. § 103(a)(4)(B), 29 U.S.C. § 1023(a)(4)(B). The annual "statement" of the "enrolled actuary" is to include a "valuation" based on costs, liabilities, benefits, actuarial assumptions and methods used to determine costs, justifications for changes in actuarial assumptions of cost methods, numbers of retired and nonretired participants and beneficiaries, current and present value of accumulated assets and actuarial assumptions of contributions required for "minimum funding standards," ERISA § 302, 29 U.S.C. § 1082, present values of nonforfeitable benefits for participants and beneficiaries and actuarial assumptions and techniques used in determining such values, and the like, including "such other information as may be necessary to fully and fairly disclose the actuarial position of the plan." ERISA § 103(d), 29 U.S.C. § 1023(d).

Thus, section 103(a)(4)(B) provides:

The enrolled actuary shall utilize such assumptions and techniques as are necessary to enable him to form an opinion as to whether the contents of the matters reported under subsection (d) of this section — (i) are in the aggregate reasonably related to the experience of the plan and to reasonable expectations; and (ii) represent his best estimate of anticipated experience under the plan.

And thus, section 103(d) provides that the contents of the "Actuarial Statement" in each benefit plan's annual report shall include:

(3) [t]he normal costs, the accrued liabilities, an identification of benefits not included in the calculation; a statement of the other facts and actuarial assumptions and methods used to determine costs, and a justification for any change in actuarial assumptions or cost methods; and the minimum contribution required. . . . (5) [t]he present value of the assets of the plan used by the actuary in any computation of the amount of contributions to the plan required . . . and a statement explaining the basis of such valuation. . . . (7) [a] certification of the contribution necessary to reduce the accumulated funding deficiency to zero. . . . (8) [a] statement by the enrolled actuary — (A) that to the best of his knowledge the report is complete and accurate, and (b) the requirements of § 302(c)(3) (relating to reasonable actuarial assumptions and methods) have been complied with. . . . [and] (13) [s]uch other information as may be necessary to fully and fairly disclose the actuarial position of the plan.

An actuary is not normally a fiduciary; an actuary can be considered a fiduciary only if he exercises authority or control or discretion over the plan, or renders investment advice concerning plan assets. See 29 C.F.R. § 2509.75-5 (1986) ("attorneys, actuaries and consultants performing their usual professional functions will ordinarily not be considered fiduciaries" unless they give investment advice or have discretion over plan management); F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1259-60 (2d Cir. 1987) (plan attorney held not a fiduciary under the regulations where he did not exercise authority or discretion over plan assets or management). Plaintiffs have not alleged that defendant was engaged to perform, or did perform, anything other than actuarial services.

B. Provisions Governing Civil Suits Under ERISA

Section 502 of ERISA, 29 U.S.C. ยง 1132, authorizes civil actions to enforce the Act and employee benefit plans organized thereunder. Subsection (a) provides specifically who may sue, for what, and ...


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