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Saint Peter's University Hospital Retirement Plan: Responses to statements made in the February 24, 2012 letter and accompanying Q&A

Date Published: 
Wednesday, February 29, 2012

This document is a direct response to the letter and Q&A sent out by Saint Peter's University Hospital CEO Ronald Rac. Learn more by reading our fact sheet, Saint Peter’s University Hospital Retirement Plan: The law and the facts

1.  Statement:  In his February 24 letter Ronald Rak states that Saint Peter’s University Hospital “will seek a refund of insurance premiums Saint Peter’s has paid to the PBGC. Although not required to do so, Saint Peter’s will invest any refunds received into your pension trust.”

Response:  If Saint Peter’s were to receive a refund of premiums it has paid to the Pension Benefit Guaranty Corporation (PBGC), the federal pension insurance program, it would only be for six years of premiums. This relatively small amount would do little to shore up the assets of the pension fund.

If the plan were no longer covered by the PBGC and were to be terminated now, employees and retirees would lose significant portion of the benefits they have earned. That is because the plan is currently estimated to be only 63 percent funded. That is far short of the amount needed to pay everyone their promised pensions.

In contrast, if the plan remains covered by the PBGC, all benefits up to a maximum of $4,653.41 a month, payable at age 65 ($55,840.92 a year) would be fully paid.

2.  Statement:  In the February 24 letter, Ronald Rak says “our consultants and attorneys, as well as our financial advisors, have advised us that it would not be economically feasible to convert from our current church plan to an ERISA plan.”

Response:  The Saint Peter’s plan would not have to “convert” to ERISA status because the plan is currently an ERISA plan. (In fact, Saint Peter’s University Hospital has treated the plan as an ERISA plan since 1974, and has been paying PBGC premiums since 1974.) However, arrangements would have to be made with the Internal Revenue Service to cover the shortfalls in required funding contributions over the past six years. Making up these shortfalls will be critical to restoring the solvency of the plan.

3.  Statement:  In the Q&A accompanying the February 24, 2012, letter the statement is made that ERISA “does not apply to a pension plan sponsored by an organization with ties to a religion.”

Response:  The exemptions to ERISA that Congress enacted were extremely narrow. They did not extend to organizations that merely had “ties to a religion.” There were intended to apply only to situations where a church created, and was directly involved in, a plan (or where a plan is maintained by a “church pension board” established by a church convention). The assumption was that churches would “take care of their own,” and would stand behind their plans. The Diocese of Metuchen did not establish the Saint Peter’s plan and will not act as a backstop if it fails.

4.  Statement:  The Q&A states, “IRS rules define a Church Plan as a plan established and maintained for its employees (or their beneficiaries) by a church or a convention or association of churches, including such a plan established and maintained by a church-controlled or association-controlled organization (e.g., a hospital with religious affiliation with a church.)” 

Response:  This statement does not refer to IRS rules, but rather to “private letter rulings” issued to certain church-affiliated organizations before 2006. In 2006, as the result of a lawsuit brought by participants in the Hospital Center at Orange retirement plan that challenged the government’s interpretation of the law, the IRS stated that it was reconsidering its position and placed a moratorium on future rulings.

The IRS lifted its moratorium on September 26, 2011, by issuing Revenue Procedure 2011-44. The Revenue Procedure did the following:

    • It requires church-affiliated organizations seeking a church plan private letter ruling to notify their pension plan participants of the consequences of participating in a church plan ruling, including the possible loss of earned benefits; and
    • It requires that such notification also inform participants that they are entitled to comment to the IRS as to whether their plan is a “church plan”.


      Significantly, the Revenue Procedure relied on a Treasury regulation that states that “the term ‘church plan’ means a plan established and at all times maintained for its employees by a church…”  The regulation does not say that a “church-controlled or association-controlled organization” is a church plan.
       

    5.  Statement:  ”Saint Peter’s has funded the plan over the years at a rate substantially greater than that required for a Church Plan.”

    Response:  This statement is true because there are only minimal funding requirements for church plans. If the IRS were to grant church plan status to Saint Peter’s it could reduce its contributions to the plan, resulting in even greater underfunding, and greater losses to participants if the plan should terminate.

    6.  Statement: “[T]he PBGC guarantee would be phased in over a five-year period, 20% each year.”

    Response:  Since the Saint Peter’s plan is already covered by the PBGC, there would be no phase-in. The phase-in is only for new plans started within five years before a plan terminates (or for new improvements in benefits).  Saint Peter’s University Hospital has been paying PBGC premiums since 1974.  

    Additional comments:

    There is no reason for Saint Peter’s to seek a church plan ruling (or to claim that it is not an ERISA plan) other than to save money. Saint Peter’s is subject to all other federal worker protection laws. There is no constitutional justification for the broad exemption claimed by Saint Peter’s. 

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