ELCA sued over pension fund - Evangelical Lutheran Church in America

Christian Century, May 3, 1995

A MINNESOTA jury is scheduled to hear a case in early May involving a group of clergy and lay workers of the Evangelical Lutheran Church in America (ELCA) who are suing their denomination to gain release of their pension fund accumulations. Current ELCA Board of Pensions regulations stipulate that participants may not withdraw their contributions unless they leave the ministry or retire, and in the latter case, only in monthly installments predetermined by the pension board.

The plaintiffs in the case, collectively called the Pension Defense Fund (PDF), are requesting a change in policy based on their contention that the ELCA's officers, including the directors of the pension plan, have violated their duty to contributors by basing investment decisions on social and political issues rather than on financial ones such as an investment's anticipated yield. In essence the plaintiffs are charging the denomination with breach of contract.

Church officials counter by, saying that regulations do not permit lump-sum withdrawals of funds. They have also maintained that the plaintiffs are wrong in claiming that all retirement fund contributions have been subjected to a program of "social investing." ELCA Board of Pensions CEO John Kapanke has said that only investment instruments clearly identified as socially responsible come under scrutiny regarding their social impact--an assertion denied by the plaintiffs' attorneys, who say they have documentation that proves otherwise.

The conflict began in the late 1980s and led to the publication of a book by the plaintiffs leader, Thomas Basich, a pastor in St. Paul, Minnesota. Basich's book, titled Pension-Gate, offers his account of how the ELCA divested its retirement portfolio of major corporation stock shares. Joined by Basich's son, Matthew, and his daughter, Lynn, who is one of the attorneys for the group, the list of plaintiffs now numbers some 49 from 21 states. They argue that because of the church's policy of social investing, many "blue chip" companies have been dropped from the portfolio, the result being depleted pension checks. They are also seeking lump-sum withdrawal of their funds so as to enable them to invest elsewhere.

In 1974 when Congress passed the Employee Retirement Income Security Act, religious bodies lobbied successfully for exemption from its regulations. This exemption left the door open for churches to manage pension funds in whatever fashion they desired. With many denominations, this freedom often allowed for considerable latitude in screening companies prior to investing church funds.

But as Andy Zipser pointed out in a Barron's article titled "Good Intentions Bad Results" (Nov. 15, 1993), "the very concept of what constitutes responsible investing has become enormously complex." Formerly, Zipser contends, responsible investing meant staying clear of stocks of companies that manufactured products considered morally repugnant. Alcohol and tobacco traditionally led the list, followed by nuclear systems and firearms. Today stock ownership has assumed broader dimensions and involves going beyond looking at what a company produces and its anticipated earnings. Church groups in particular are struggling with the social and moral dimensions of investing. If owning stock carries with it some level of responsibility for a business's policies and actions, then managers of church retirement programs feel they are justified in screening companies on the basis of their environmental record, labor relations, treatment of women and minorities--and up until the change in South Africa's government, their involvement in that country's apartheid system.

Basich and the other plaintiffs in the Lutheran lawsuit reply that church pension fund managers do not have the right to make decisions on such issues since pension contributors do not agree on interpretations of the issues themselves nor on possible responses to them. A frequently cited case is South Africa under apartheid. Some committed church members concluded that supporting companies that did business in South Africa was a more effective way to raise blacks' standard of living than imposing sanctions. Other equally committed people believed that sanctions were both morally and practically called for.

Basich argues that not only is there a lack of consensus, but that clergy and other churchworkers who contribute to the pension plan receive little information about how their money is invested. Says Basich: "As a citizen I have the right to support any cause of my choice--using my own money; but I do not have that right--using other people's money." Getting the ax in the Lutheran fund, the plaintiffs say, were such companies as Bordens, Colgate-Palmolive, Hewlett-Packard, Deere, Mobil, Bristol-Myers, Squibb, General Electric, Westinghouse, Ford, IBM and Motorola.

Attorneys and representatives of the ELCA Board of Pensions call the suit baseless. But last spring they were unable to persuade the court to dismiss the case through summary judgment. Says John Harris, one of the chief defense lawyers: "At the time this war broke out, there were 12 investment funds available for pension plan members. Six were screened for various things; six weren't. Anyone in the screened funds got there because they chose to go into those funds." Plaintiffs argue that even the so-called "unscreened" funds had been subjected to the pension board's social-investing strategy.