Click here for a short summary of the issue. Click here for a detailed timeline.
See also the Pension Rights Center website.
Click here for ex-St. Peter's CEO John Matuska's 2011 letter to the IRS.
Click here for ex-St. Peter's VP of HR Bruce Pardo's 2011 letter to the IRS.
Haga clic aqui para verun resumen del problema en español.

Thursday, April 3, 2014

Court Ruling Analysis and Follow-up

Numerous news articles have now been published about the recent court ruling in Kaplan v. Saint Peter's Healthcare System that the hospital's pension plan is not a church plan. These include:

We'll get back to those articles a bit later.

Judge Shipp's ruling, in denying Saint Peter's claim that their pension plan is entitled to ERISA's church plan exemption, also denies their motion to dismiss the case. The case can thus now proceed, a process which we expect to take several months.

The main thrust of the ruling is to agree completely with the plaintiffs' (Kaplan et al.) reading of the ERISA statute that defines a church plan, and to reject Saint Peter's. To state it very briefly, a church plan must be established by a church or a convention or association of churches. Saint Peter's relied upon a subsection of the statute that allows church-associated organizations to maintain such a plan, stretching the meaning to infer that such an organization can also establish a church plan. Judge Shipp found this argument inconsistent with a plain text reading of the statute, which clearly and unambiguously requires that a church plan be established by a church. He noted additionally that the hospital sought to redefine the term "church" in the statute to include organizations like itself.
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. In this context, a tax-exempt organization itself would have to be considered a church under the statute because a church is the only entity allowed to establish a church plan. 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.
In other words, courts must be skeptical when employers look to exempt themselves from ERISA, which was enacted to keep them accountable for their commitments to their employees. We would note that the opinion states as unchallenged fact that the hospital operated the plan as an ERISA plan from its 1974 founding through 2006, when it sought church plan status from the IRS, continued thereafter to pay PBGC insurance premiums, and didn't notify its employees of its church plan application until November 2011. Though hospital administration danced around these facts when confronted with them in town-hall meetings, they apparently did not challenge them in court.

Judge Shipp's opinion largely agrees with, and cites at length, the recent similar decision in the related Rollins v. Dignity Health case. As in that case, Judge Shipp dismissed the argument that legal consideration be given the IRS's and Department of Labor's recent history of granting church plan status to church-related organizations -- including the ruling the IRS granted Saint Peter's in August 2013.
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. ... 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.
(We were certainly disappointed back in August that the IRS appeared to accept Saint Peter's assertions as fact, and to ignore the numerous letters and statements plan members submitted during the comment period.)

It's uncertain what the hospital will try next. In the Geller article, the hospital's attorney, Jeffrey Greenbaum, leans on its (now discredited) IRS ruling and says, "I think it's undisputed that St. Peter's is controlled by the church ... and we believe that we've put in strong proof that it is associated with the church as defined by Congress." Note that per the ruling, being "controlled by" or "associated with the church" is not enough; unless Saint Peter's is an actual church, it cannot claim church plan status under ERISA. In the most recent article by Bob Makin, Greenbaum asserts that the hospital will appeal, though we're not sure if he means the ruling or the case, once it is decided in favor of the plaintiffs. Given the size of the funding deficit, it appears likely that the hospital will seek to avoid its ERISA obligations for as long as possible -- unfortunately continuing to spend money on their legal team that could otherwise be funding the plan.

Thomas E. Clark Jr., whose excellent summaries we have cited several times, is quoted in the Bradford article. In light of the decisions in the Dignity and Saint Peter's cases, he notes, "The clear trend is that the courts are throwing out 30 years of IRS interpretation on this issue." This is indeed great news for employees and retirees of Catholic hospitals across the country.