St. Peter's managed its retirement plan in compliance with the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). St. Peter's explicitly referenced ERISA and Federal insurance by the Pension Benefit Guaranty Corporation (PBGC) in its retirement plan documentation. See this excerpt from a St. Peter's employee brochure circa 1990s for details.
1990s - 2000s
A trend develops for organizations with some link to a religion -- such as hospitals, schools, and nursing homes -- to apply to the IRS for "church plan" status, taking advantage of a loophole in the tax code to exempt church pension plans from most ERISA protections. This saves organizations from having to pay PBGC insurance premiums and from complying with ERISA funding requirements.
Cases begin coming to light of financially strapped organizations obtaining "church plan" status, then stranding their pension plans. For instance:
- Financially-strapped Medical Center at Orange (NJ) claims "church plan" status in 2003 and immediately stops contributing to its pension plan. When the organization declares bankruptcy in 2004, it pays off creditors but stiffs the pension plan. As of 2010, according to the Wall Street Journal, its funding was down to 30% of promised benefits, expected to run dry in 2013.
- St. Francis Medical Center in Lawrenceville, PA, goes bankrupt in 2002, leaving a funding deficit and no insurance. It had applied for church plan status in 1994.
Medical Center at Orange employees file suit against the PBGC.
St. Peter's applies to the Internal Revenue Service for church plan status. It removes references to the PBGC and ERISA protections from the plan documentation, but does little else differently in managing the plan.
In response to the Medical Center at Orange lawsuit, and to evidence that organizations are misusing the church plan designation to escape their pension responsibilites, the IRS places a moratorium on church plan rulings.
The IRS lifts the moratorium on church plan rulings, with a new requirement: employers must notify "interested persons" of the planned change in status, and give them a chance to comment. This is why SPUH employees and retirees received the detailed church plan notice in November, and why we have a chance to convince the IRS to deny the ruling the hospital seeks.