The IRS' long-term trend of allowing church-affiliated defined benefit pension plans to be exempt from federal pension rules could reverse course after an unusual decision by the agency and a flurry of lawsuits.
One sign of that change came in late March when the Internal Revenue Service took the unusual step of revoking a church plan status ruling issued a decade ago to the now-closed Hospital Center at Orange in Orange, N.J., whose plan had a $30 million funding deficit. The IRS move led the Pension Benefit Guaranty Corp., whose officials supported the reversal, to announce May 10 that it would cover the pension benefits for nearly 800 former employees.
Between March and now, five major class-action lawsuits were filed in separate jurisdictions against some of the biggest names in health care — Dignity Health, San Francisco; Ascension Health Alliance, St. Louis; Catholic Health Initiatives, Englewood, Colo., Catholic Health East, Newtown Square, Pa.; and Saint Peter's Healthcare System, New Brunswick, N.J. — now operating their pension plans under church plan status.
The lawsuits, filed by ERISA law firms Keller Rohrback LLP in Seattle and Cohen Milstein Sellers & Toll PLLC in Washington, are collectively seeking more than $2 billion in missed pension contributions and other damages. Among other claims, the lawsuits challenge the interpretations made by the IRS and the Department of Labor that allowed the hospitals, which have varying degrees of church associations, to be exempt from the Employee Retirement Income Security Act.
St. Peter's Healthcare System spokesman Phil Hartman said officials there consider the lawsuit to be without merit because the hospital was established by nuns more than a century ago and is affiliated with a local Catholic diocese. Despite having operated as an ERISA plan until seeking church plan status in 2006, “we've always been overseen by a religious entity,” Mr. Hartman said.
Dignity Health spokeswoman Tricia Griffin declined to comment on the lawsuit, but said in a statement, “We remain committed to ensuring our retirees and beneficiaries receive the benefits they have earned. We believe we have complied with the law, including the applicable requirements for our retirement plans.”
Catholic Health Initiatives spokesman Michael Romano and Ascension Health spokeswoman Trudy Hamilton declined to comment. Calls to Catholic Health East and attorneys for the plaintiffs were not returned.