Decision in Saint Peter’s “Church Plan” Case a Victory for Workers and Retirees; Lawsuit against Hospital Can Proceed

Decision in Saint Peter’s “Church Plan” Case a Victory for Workers and Retirees; Lawsuit against Hospital Can Proceed

WASHINGTON – On Monday, a New Jersey federal district court judge ruled that a pension plan established by religiously-affiliated hospital is not a “church plan” exempt from the protections of federal pension law. The Honorable Michael A. Shipp denied a motion to dismiss filed by the hospital in a lawsuit brought by a former hospital employee, Lawrence Kaplan, in Kaplan v. Saint Peter’s Healthcare System.

“This is a great victory for the 4,700 Saint Peter’s employees and retirees, many of whom worked their entire careers counting on a federally guaranteed pension” said Karen Ferguson, director of the Pension Rights Center. “While there are still many steps to go in the legal process, the Saint Peter’s decision makes plain that Congress only exempted plans established by churches from the law. This makes sense since only those plans are backed by churches. The ruling is particularly important for Saint Peter’s participants whose plan fully complied with the federal pension law’s funding and other requirements from 1974 to 2006, but is now underfunded by $70 million.”

Judge Shipp’s decision referred to a similar ruling in December by the Honorable Thelton E.  Henderson of the federal district court for the Northern District of California in Rollins v. Dignity Health in finding that (emphasis added):

…a church plan must, from the outset, be established by a church and can be maintained by an organization controlled by or associated with a church.

…as a matter of law, that SPHS’s Plan is not a church plan and…the Court has subject matter jurisdiction of Plaintiff’s ERISA claims.

Recognizing the purpose of ERISA and the impact of the church plan exemption on the hospital’s workers and retirees, Judge Shipp further stated (emphasis added):

If the Court were to accept SPHS’s interpretation, any tax-exempt organization can establish its own pension plan, maintain it, and then employ the church plan exemption by purporting to be controlled by or associated with a church…Defendants’ contention in this regard is unreasonable. The Court cannot conclude that Congress intended to create this slippery slope, especially considering that the point of enacting ERISA was to promote the interest of employees and their beneficiaries. Opening the door to expand the church plan exemption to this extent would place more employees at risk of having insufficient benefits upon retirement. What must be kept in mind is that ERISA is a remedial statute, so any exemptions included thereunder should be construed narrowly…Defendants’ interpretation would achieve quite the opposite.

Judge Shipp also addressed the fact that the IRS had issued a private letter ruling in August 2013 (emphasis added):

Although SPHS has received a private letter ruling, the Court cannot give it deference for several reasons. As an initial matter, the ruling conflicts with the plain text of the statute and is therefore unreasonable. “The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.” See Chevron, 467 U.S. at 843 n.9. Furthermore, the IRS private letter ruling is conclusory, lacking any statutory analysis, and cannot be used as precedent because the ruling was issued in a non-adversarial setting based on information supplied by SPHS.

In another church plan case, Chavies v. Catholic Health East, U.S. District Court, Eastern District of Pennsylvania, denied the defendant’s motion to dismiss without prejudice and is allowing 120 days of discovery on the question of whether the hospital is a church as defined by ERISA and the Internal Revenue Code.

The Pension Rights Center has been working with Saint Peter’s participants and others around the country to preserve federal pension protections for tens of thousands of current and former employees of religiously-affiliated hospitals, social services organizations, educational institutions, and other nonprofits whose retirement security has been placed at risk by government agency rulings that are contrary to the express language of the law. The Center applauds the decisions by Judge Shipp and Judge Henderson and the advocacy efforts of the law firms that are championing the rights of the participants, Cohen Milstein Sellers & Toll and Keller Rohrback.   

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Contact Name: Nancy Hwa
202-296-3776