New AP Article on Church Plans

The Associated Press today released a great story by Adam Geller on how church-affiliated hospitals are saving money by removing the federal pension safety net. It's been published on the websites of many media outlets including NPR and the Washington Post; it should appear in Sunday's newspapers. The story discusses how many hospitals, including Saint Peter's, have embraced "church plan" status at the urging of their retirement consultants. This strategy enhances the hospitals' bottom line in the near term, and makes it much easier for them to break their financial commitments later, e.g., if the hospital fails or is sold. As the story explains, this is how the strategy has unfolded in the past at many organizations, and is now unfolding at St. Mary's Hospital in Passaic, which is trying to dump their pension as part of a pending sale.

Saint Peter's has been claiming all along that the hospital is controlled by the Diocese of Metuchen, and the IRS cites that claim in their recent ruling supporting Saint Peter's church plan status. We surmise that the same has been true at St. Mary's, and note with irony the following passage in the AP story:

St. Mary's would not answer questions about the hospital's management of its pensions or details of the pending acquisition. The Sisters of Charity of Saint Elizabeth, the Convent Station, N.J., order that sponsors the hospital, referred all questions to St. Mary's.

The article indirectly quotes Saint Peter's attorney:

A lawyer for the hospital, Jeffrey Greenbaum, said St. Peter's had the right to make the change because of its association with the Catholic Church, and it is not breaking its promises to workers and retirees.

If this story shows anything, it is that such claims are so much hot air. That the hospital says it is not breaking its promises today, and intends to keep them in the future, does not mean it won't welsh on them later if things go south. A church plan ruling means the hospital is free to fund – or not fund – the plan as they see fit, can save the money it would have spent on insuring the plan, and can keep the details of its operation a secret. The freedom to abandon pension commitments, along with the immediate cost savings, is the reason for pursuing a church plan ruling.

In other news, the plaintiffs in the recent class action suit have responded to Saint Peter's motion to dismiss the suit. We'll post in more detail about this soon.