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.

Switch to 'church plan' pension status at Saint Peter's University Hospital stirs concerns

Home News Tribune
10:54 PM, Feb. 8, 2012

NEW BRUNSWICK — Larry Kaplan is feeling anxious, and he’s not alone.

Ten years ago, Kaplan retired from his position as a manager for nutrition services at Saint Peter’s University Hospital, and he now lives in Toms River with his wife, Gloria. He said he fully expected his defined benefit retirement plan would be secure under federal private pension law and protected by federal insurance.

But he and other employees and retirees of Saint Peter’s Healthcare System were officially put on notice last fall that Saint Peter’s was seeking affirmation from the Internal Revenue Service that its pension plan now officially has “church plan” status.

In contrast to pension plans run under federal pension law, the Employee Income Security Act (ERISA), and insured for solvency by the Pension Benefit Guaranty Corp. (PBGC), church plans have no such mandated protections.

Saint Peter’s Healthcare System has more than 3,000 employees and retirees. After being notified of the change to church-plan status, these people were able to submit comments to the IRS up until Jan. 20.

“This whole situation caught everybody by surprise,” Kaplan said. “The employees of the medical center are extremely dedicated employees. And they were always under the impression that Saint Peter’s would take care of us. When we received this letter, (saying Saint Peter’s wanted to switch to a church plan) everybody lost faith in the hospital and the hospital administration.

“It’s something that I counted on as protection,” he added.

Besides Saint Peter’s University Hospital, the health care system includes the Saint Peter’s Foundation and the Saint Peter’s Health and Management Services Corp., which oversees various initiatives, including the Margaret McLaughlin McCarrick Care Center in the Somerset section of Franklin, the CARES Surgicenter of New Brunswick and the Adult Day Center in Monroe. The church-affiliated organization operates under the Diocese of Metuchen.

Phil Hartman, director of public relations at Saint Peter’s Healthcare System, said that although Saint Peter’s has operated as a church plan since 2006, it has nonetheless voluntarily followed all but one ERISA guideline and has also been paying for PBGC insurance. Saint Peter’s has been spreading out its pension obligation payments into annual installments rather than making ERISA-mandated lump-sum payments that cover multiple years at a stretch, he said.

“The very basic reason (for switching to a church plan) is that it allows us to spread out funding in payment installments rather than paying in one lump sum every several years,” Hartman said. “If you have to pay one lump sum, then you have to get into issues of operating expenses. It gave us a lot more flexibility.”

No IRS timetable

Hartman said Saint Peter’s Healthcare System plans to conduct a series of meetings throughout the system at the end of the month that will be open to both employees and retirees who will have an opportunity to have any questions they may have answered. The IRS, he noted, has no timetable for making a decision regarding the status of the Saint Peter’s pension plan.

Critics of “church plans” argue that the status strips away basic protections provided under federal law that are available to virtually all other private-sector pension plans. Church plans, they say, do not have to give employees information about their benefits or about plan investments, are not required to pay benefits fairly, are not required to adequately fund the pension plan and are not covered by the PBGC insurance.

Some wary of changing federally protected pension plans to church plans point to the closing of the Hospital Center of Orange as a cautionary tale. Controlled by the Archdiocese of Newark, the hospital closed in 2004 and sold off its assets leaving a reportedly underfunded pension fund that is expected to run out of money in only a few years. Having PBGC insurance would have guaranteed solvency.

Hartman said that the Saint Peter’s pension fund is currently funded “within the range of what the PBGC requires” That range, he said, requires that pensions be close to 90 percent fully funded. Hartman said statements he has heard saying that the Saint Peter’s fund was closer to 60 percent funded were inaccurate because they were based on accounting methods that are different from the ones used by the PBGC.

Nancy Hwa, communications director for the Pension Rights Center, a Washington-based advocacy group for retirement security, said her organization was approached by people at Saint Peter’s looking for guidance and explanations regarding their pension rights.

Hwa said it was her understanding that in order to keep PBGC protection, a pension plan had to abide by all ERISA guidelines, not just ones they chose to abide by. She also said that it was her understanding that a church plan needed to be set up by either the church itself and maintained by the church or by a special entity known as a church pension board.

“That’s not the case with Saint Peter’s (hospital); they’ve had their own plan,” Hwa said. “Basically, what Saint Peter’s is asking for, is formal recognition from the IRS as a church plan. We basically don’t think the IRS should grant them that recognition.”

Meanwhile, retirees like Kaplan are in a wait-and-see game, looking to get more answers by the month’s end. “I get emails every day asking what going to happen,” Kaplan said. “I’ve spoken to dozens of colleagues over the year. We’re legitimately worried because we don’t have any answers and because we always thought we were protected.”

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