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Bishop Scharfenberger's Personal Liability Judgement: A Turning Point for Catholic Fiduciary Governance
By Mary Brunson
Less than two weeks before Christmas, a no-turning-back moment occurred for Catholic church leaders. On December 12, 2025, the jury reached its verdict in the Hartshorne and New York Attorney General consolidated actions against the Roman Catholic Diocese of Albany. The jury found multiple individuals—including two bishops, senior diocesan personnel, and St. Clare’s executives—personally liable for fiduciary breaches connected to the collapse of the St. Clare’s Hospital pension plan, resulting in $54.2 million in compensatory damages, plus statutory interest, owed to the plan’s beneficiaries.1 The jury’s findings mark a pivotal moment for Catholic institutional governance in the United States, and serve as a cautionary lesson for Catholic organizations.
Crucially, while the Diocese of Albany was not found directly liable—the jury rejected veil‑piercing and found the Diocese was not a trustee of St. Clare’s under New York’s Estates, Powers, and Trusts Law (“EPTL”)—the Diocese was nevertheless held vicariously liable for the wrongful conduct of Bishop Edward Scharfenberger, Bishop Howard Hubbard, Joseph Pofit, and Father David LeFort, who were all deemed diocesan employees or agents acting within the scope of diocesan authority.2
This verdict represents the clearest civil statement to date that Catholic ministries and leaders—lay and clerical—can be held fully accountable under secular fiduciary law, and that church‑plan status offers no insulation from liability when governance breaks down.
What Happened? How the Church‑Plan Pension Collapsed
St. Clare’s Hospital, a Catholic institution established in 1945, had maintained a defined‑benefit pension plan for its employees dating back to 1959. In 1992, the plan obtained “church plan” status. Such status exempted the plan from abiding by the regulations of the Employee Retirement Income Security Act (“ERISA”) funding rules and Pension Benefit Guaranty Corporation (“PBGC”) insurance requirements—an exemption secured through representations that the plan was “established and maintained” by the Roman Catholic Church and that hospital employees were employees of the church.3
Beginning in 1998, the hospital sharply reduced or eliminated pension contributions, even as liabilities grew. This move was against actuarial advice the Board received. By 2006, the plan was underfunded by approximately $43 million.4
When the hospital closed in 2008, its corporate shell persisted solely to manage the pension plan. A $28.5 million state grant—less than actuarial recommendations—was used to purchase an investment annuity, eliminating the prior guaranteed group annuity that protected retirees’ benefits.5
By 2015–2017, plan fiduciaries repeatedly notified participants that the plan’s deficit had worsened—from $14 million to $33 million—and that assets would be exhausted between 2024 and 2028. Internal actuarial reports showed even earlier exhaustion.6
In October 2018, the board terminated the plan. Participants age 62or older on Nov. 1, 2015, would receive 70% of their vested benefit; younger participants would receive nothing. More than 1,100 employees ultimately lost retirement benefits they had earned over decades.7 8
Who Was Found Responsible and Liable? Key Legal Findings
Direct Liability: Individuals, Not the Diocese
The jury assigned the following percentages of fault for fiduciary breach:
- Joseph Pofit: 25%
- Robert Perry: 20%
- Bishop Howard Hubbard: 20%
- Bishop Edward Scharfenberger: 10%
- Father David LeFort: 5%
- St. Clare's Corporation: 20%
- Diocese of Albany: 0% (no direct breach)9
The Diocese was explicitly found not to have dominated and controlled St. Clare’s, meaning the corporate veil could not be pierced. The Diocese was also found not to be a trustee under EPTL and therefore owed no direct fiduciary duty as trustee.10
Vicarious Liability: A Historic Development
Even though the Diocese was found to have committed no direct breach, the jury held the Diocese to be vicariously liable because the wrongful acts of Scharfenberger, Hubbard, Pofit, and LeFort were performed within the scope of diocesan employment or agency and furthered diocesan business interests.11
This creates a landmark precedent: bishops and diocesan officers can generate diocesan financial exposure even for pension plans not directly managed by the diocese, when acting in ex officio or corporate‑governance roles.
At the Heart of the Judgment: Documented Governance Failures
The trial record provides among the most detailed public accountings of fiduciary dysfunction in any U.S. Catholic institution to date.
The Failure to Fund Despite Explicit Warnings
Actuaries repeatedly warned the board that:
- contributions were insufficient,
- investment returns were inadequate, and
- the plan would run out of money within a predictable window.
These warnings were not followed; contributions ceased for 12 of 15 years beginning in 2002.12
Evidence of Misleading or Incomplete Communications
Multiple letters and documents—including 2005, 2008, 2009, 2015,2016, and 2017 communications—told employees their accrued benefits were guaranteed, or that funding changes would “fully fund the plan,” despite contrary actuarial data.13
The jury concluded these misstatements contributed directly to participant harm.
PBGC Election Reversal Based on Optics, Not Analysis
In 2017, the board voted to opt in to ERISA and purchase PBGC coverage, consistent with actuarial and legal advice. Coverage would have preserved 20–40% of benefits for participants younger than 62, who would otherwise be entitled to nothing.14
However, the board reversed course in 2018 because:
- the Directors' and Officers' Liability Insurance15 was not renewed and
- Bishop Scharfenberger objected, citing the moral and reputational implications of seeking PBGC assistance without having paid premiums.16
The plan was then terminated without PBGC protection.
Conflicted and Poorly Documented Governance
The record shows:
- trustees lacked pension or actuarial expertise;
- trustees held no meetings at all during key periods;
- major decisions lacked a contemporaneous rationale; and
- Pofit, as board chair and diocesan employee, paid his own company more than $1.1 million from plan-related corporate assets, while signing annual IRS Form 990s asserting no related-party transactions occurred.17
What Does The Verdict Mean for Catholic Ministries Nationwide?
Church‑Plan Exemption Does Not Reduce Accountability
Civil courts enforce fiduciary duties under state trust law, state nonprofit law, contract law, and common‑law fiduciary standards—even when ERISA does not apply.
The jury’s findings reinforce that ERISA exemption may increase fiduciary risk because ERISA’s structural protections are absent.
Ex Officio Roles Carry Civil Legal Duties
The verdict clarified that ex officio does not mean exempt.
Bishops serving on boards—even without day‑to‑day management—still bear fiduciary obligations under civil law, and their actions can create vicarious liability for their dioceses.
Communications Must Reflect Actuarial Reality
Statements that omit deteriorating funding conditions, even if well‑intentioned, constitute fiduciary breach when participants rely upon them.
Documentation Is Essential
Courts scrutinize written records. Inadequate minutes, absent rationales, and undocumented decision‑making were repeatedly cited as evidence of fiduciary breach.
What Is a Good Roadmap for Catholic Institutions?
This case underscores the urgent need for Catholic institutions—schools, parishes, dioceses, hospitals, religious orders—to align governance with best practices expected of any fiduciary organization.
Establish Clear Governance Structures
Boards should have:
- defined fiduciary roles,
- conflict-of-interest policies,
- documented decision processes, and
- clear lines of reporting and authority.
Adopt ERISA‑Equivalent Standards Voluntarily
Even when exempt, institutions should maintian:
- regular actuarial valuations,
- formal investment policies,
- committee charters, and
- quarterly fiduciary reviews.
Ensure Independent, Qualified Oversight
Independent fiduciaries, actuaries, and legal counsel provide:
- unbiased assessments,
- insulation from internal pressures, and
- improved transparency.
Maintain Accurate and Transparent Communications
Participant updates must reflect:
- current actuarial projections,
- funding levels,
- risks, and
- implications of board actions.
Train All Leaders—Clergy and Lay—in Civil Fiduciary Duties
Canon law and pastoral norms do not replace civil fiduciary obligations.
Let Us Make This a Moment for Renewal
The St. Clare’s verdict is both painful and clarifying. It affirms that Catholic institutions must demonstrate—not simply presume—fiduciary prudence, transparency, and stewardship. The Church’s moral witness requires that workers’ earned benefits be protected with the same rigor required of any secular institution.
The path forward is not merely about avoiding litigation. It is about honoring the workers who built Catholic ministries, rebuilding trust, and ensuring that governance structures reflect the Church’s highest commitments to justice and integrity.
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1 People v Roman Catholic Diocese of Albany, N.Y. Legal Decision (December 12, 2025)
2 Ibid.
3 People v Roman Catholic Diocese of Albany, N.Y. Court Opinion (December 3, 2025)
4 Ibid.
5 Ibid.
6 Ibid.
7 Ibid.
8 National Catholic Register, “In Rare Move, Retired Albany Bishop Files for Personal Bankruptcy After Pension Verdict” (December 19, 2025)
9 People v Roman Catholic Diocese of Albany, N.Y. Legal Decision (December 12, 2025)
10 Ibid.
11 Ibid.
12 People v Roman Catholic Diocese of Albany, N.Y. Court Opinion (December 3, 2025)
13 Ibid.
14 Ibid.
15 In 2018, the Board learned that its Directors' and Officers' Liability insurance coverage would not be extended, meaning they would no longer be insured in connection with their actions, or inactions, on behalf of the Corporation. For more information on Directors’ and Officers’ (D&O) Insurance and its potential benefits and protections, please visit the free and premium articles offered by Napal Legal Institute.
16 Ibid.
17 Ibid.
Disclosure: The views expressed in this article are solely those of the author and do not necessarily reflect the views of IFA. This article is provided for general informational purposes only and should not be construed as investment advice, legal advice, an offer to sell any financial product, or a recommendation to engage in any investment strategy. The publication of this article on this website does not constitute an endorsement by Index Fund Advisors, Inc., nor does it imply any partnership, sponsorship, or approval between the parties.
Mary Brunson is the Senor Vice President and Co-Founder of Investing for Catholics
