Termination of Retirement Benefits

Court rules that retired pastor can sue his former church for breaching its promise to pay him in retirement.

Church Law and Tax 1994-05-01 Recent Developments

Retirement Plans

Key point: A church’s promise to pay a retiring pastor a portion of his former salary for the rest of his life may be legally enforceable.

An Ohio appeals court ruled that a retired pastor could sue his former church for breaching its promise to pay him one-third of his former salary for the remainder of his life. The retired pastor had become the pastor of a local Baptist church in 1958. In 1971 he suffered a heart attack and was hospitalized. While he was recuperating, a church deacon told him that the church had voted to pay his full salary for the remainder of his lifetime. That promise was never fulfilled because the pastor later recovered and resumed his pastoral duties. In 1980, the pastor again experienced heart problems. Under the advice of his doctor, he approached the deacons of the church about his retirement. He proposed that his salary be reduced after retirement through a series of gradual “step-downs,” to an amount approximately one-third of the salary he was then receiving. This proposal was accepted by the deacons, and an agreement was approved that contained that placed the pastor on “disability retirement” status, conferred upon him the title “pastor emeritus,” allowed him to set up an office in the church, and agreed to pay him retirement benefits according to the step-down schedule agreed to by the deacons. The pastor also was obligated to aid, assist and advise whomever the church called as its next pastor, to the extent that his health would permit. The pastor and deacons recommended to the church congregation that it approve the agreement, which it did by unanimous vote at a business meeting in 1980. In 1985 the congregation was advised by a church officer that the retirement benefits being paid to the former pastor under the 1980 agreement should continue for his lifetime, The church congregation again unanimously reaffirmed the agreement. From 1980 through 1990, the retired pastor occasionally preached at the church, taught Sunday School classes there, served on the budget committee, and helped with various administrative matters. Retirement benefits were paid throughout this period according to the agreement. In 1990, however, church officials notified the former pastor that he had been dismissed from membership in the church and that no more payments would be made to him. All other benefits, such as the free office space, were also discontinued. The former pastor sued the church, claiming that it had breached its contract to pay him retirement benefits for life. The church insisted that there was no legally binding contract obligating the church to pay the former pastor retirement benefits for life, and that the payments made by the church from 1980 until 1990 were gifts. A jury ruled in favor of the retired pastor, awarding him $151,000 (representing the present value of all amounts due under the agreement for the balance of the pastor’s life expectancy). The church appealed. The church argued on appeal that the agreement to pay the pastor retirement benefits was not a legally enforceable contract for two reasons. First, there had been no “meeting of the minds,” and second, the pastor had given no “consideration” in exchange for the church’s promise to pay him retirement benefits. The appeals court rejected both of these arguments. It acknowledged that “one of the elements essential to a valid contract is a meeting of the minds of the parties as to the terms of the contract.” However, it rejected the church’s claim that no such “meeting of the minds” had occurred. With regard to the church’s claim that there was no “consideration” for the church’s promise to pay retirement benefits, the court observed: “Consideration is, of course, an element necessary for a binding contract, and a complete lack of any consideration is a valid defense to a breach of contract action.” The court noted that consideration refers to something of value given by a promisee (the pastor) in exchange for the promisor’s (the church) promise. The court concluded that the pastor in fact had given something of value to the church in exchange for its promise to pay him retirement benefits: “[He] was obligated to aid, assist and advise whomever the church called as a new pastor, to the extent that [his] health would allow.” This commitment on the part of the pastor was sufficient consideration to make the agreement with the church a legally enforceable contract. The court further observed that “consideration is not deemed legally insufficient merely because it is inadequate.” However, the court rejected the jury’s verdict in the amount of $151,000, and instead ordered the church to pay the pastor the agreed upon retirement benefits for the remainder of his life.

The court rejected the church’s argument that the church constitution gave it the right to terminate the promise to pay retirement benefits to the former pastor. The church constitution specified that

[a] statement of consideration shall be drawn up in writing by the committee and the pastor at the time of his call and shall be presented to the church for approval. Said statement shall include such consideration as salary, vacation, retirement, convention expenses, and any others deemed advisable by the church or the pulpit committee. Said statement may be changed or altered by mutual agreement between the church and the pastor at any time. When mutual agreement cannot be reached, said statement may be changed by a two-thirds majority of the members present and voting.

The church argued that this provision controlled the contract between the former pastor and the church and that it gave the church the legal right to terminate the payments made to the former pastor. The court rejected this position, noting that the evidence presented by both the pastor and the church “was consistent in establishing that the church constitution, while applying to active pastors, did not apply to retired pastors or retirement benefits paid to former pastors.”

Finally, the church suggested that its decision to terminate retirement benefits to the former pastor was justified because it was based on the church’s dismissal of the former pastor from church membership (an act protected by the first amendment). The court again disagreed:

The church argues that its decision to dismiss a pastor or member from its membership is protected by the first amendment to the United States Constitution and that such decisions are not reviewable by courts of law. A review of the record in this case clearly reveals that not only did all parties and the court agree with this general proposition but, more important, that the right of the church to dismiss [the former pastor] from membership in the church was never an issue in this case and that the trial court explicitly instructed the jury not to inquire into or consider that issue, in accordance with the church’s [request]. Brads v. First Baptist Church, 624 N.E.2d 737 (Ohio App. 2 Dist. 1993).

See Also: Termination

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