Bamboozled December 8, 2016: Catholic hospital pensions meet the U.S. Supreme Court; retirees in limbo

 

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Deborah and Henry Lubinski recently learned Deborah’s pension from St. James Hospital is going bust. (Tom Brenner/for NJ Advance Media)
Catholic hospital employees who fear they will lose the pensions they were promised were delivered a setback this week, courtesy of the U.S. Supreme Court.

The court it will hear three cases — including one against the pension plan of St. Peter’s University Hospital in New Brunswick — to decide what kind of pension plan rules the hospitals must follow.

The hospital pension plans were established as traditional pension plans, which meant they had to follow federal Employee Retirement Income Security Act (ERISA) rules. Those rules included buying federal insurance that guaranteed the plans and making sure the plans met minimum funding requirements.

The rules meant the financial futures of retirees would be protected.

But then, the hospital plans jumped on a loophole that would permit them to ditch those rules. Because they were affiliated with churches, they petitioned the IRS to be considered “church” plans, which are exempt from ERISA.

And one by one, the pension plans were granted the exemptions.

When Catholic hospital employees got wind of the change, they decided to fight. The pensioners went to court, arguing that Catholic hospitals were not the same as churches, even if they were affiliated with churches, so the plans should be subject to ERISA protections.

Lower courts agreed with the pensioners, saying the Catholic hospital plans should not be considered “church” plans. That meant the plans were subject to ERISA rules, and the pensions should be guaranteed.

Catholic hospitals using an IRS rule that allows “church” pension plans to avoid safeguards are under fire, and pensioners are losing money.

But then, the hospitals headed to the highest court in the land, and the Supreme Court announced this week it wanted a closer look.

Had the Supreme Court declined to hear the case, the lower court rulings would stand, and retirees could have continued with their suits, which claimed the Catholic hospitals skirted federal regulations and didn’t properly fund or insure the pension plans.

The cases could mean everything for employees of the former St. James Hospital of Newark.

Bamboozled reported last month that St. James pensioners received notification that their pension plan would be broke in a few months.

The St. James pension plan, like the other Catholic hospital pension plans, was initially established as a traditional pension plan. After decades of paying pension insurance, they were later deemed “church” plans.

It means the St. James pension, and the pensions of other Catholic hospitals and other nonprofit groups that are affiliated with religious groups, would no longer be protected by federal law.

Now the Supreme Court will decide whether the IRS was correct in giving “church” status to these pensions.

“If the Supreme Court rules the same way as the lower courts, it means the pensions of hundreds of thousands of retirees will be protected,” said Karen Ferguson, director of the Pension Rights Center, which was integral in the fights in the lower courts.

But we don’t yet know what this could mean for St. James pensioners, she said.

“The Archdiocese [of Newark] has disclaimed all responsibility for that plan, and the IRS gave the ruling that it was a ‘church’ plan, but if it is withdrawn as a result of the Supreme Court decision, in theory the pension guarantees could be restored,” Ferguson said. “The problem is at this moment we don’t know who is responsible for that plan.”

The Archdiocese of Newark, which was associated with St. James, said it won’t comment on litigation.

St. Peter’s, which was affiliated with the Metuchen diocese,  said it’s pleased by the Supreme Court’s decision to hear the case.

“St. Peter’s continues to fund its long-held defined benefit pension plan on a weekly basis and the plan is funded at a level the IRS does not consider ‘at risk,'” attorney Jeffrey Greenbaum said in an emailed statement. “No one’s benefits have ever been reduced. Nor have reduced benefits ever been contemplated. Monies invested in the plan cannot be used for any purpose other than paying employee retirement benefits and associated administrative costs.”

He said by being deemed a “church” plan, it “relieves the plan of excess and costly government regulation and entanglement,” and that St. Peter’s is “committed to ensuring that full plan payouts continue in the future.”

Committed, maybe, but not legally bound.

The court will hear oral argument in the three cases, Saint Peter’s Healthcare v. Laurence Kaplan, Advocate Health Care v. Maria Stapleton, and Dignity Health v. Starla Rollins, in March 2017.

We will keep you posted.

Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com. Stay informed and sign up for NJMoneyHelp.com’s weekly e-newsletter.