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Appeals court upholds ruling denying church-plan status for health-care system

A federal appeals court ruled Tuesday that Saint Peter’s Healthcare System cannot establish a defined benefit pension plan with church-plan status.

Judge Thomas Ambro, in his ruling for the 3rd U.S. Circuit Court of Appeals in Philadelphia, upheld a District Court decision that the health-care system was ineligible for the church-plan exemption because it was not established by a church.

The IRS in 2013 exempted Saint Peter’s Healthcare System from Employee Retirement Income Security Act rules on reporting, minimum contributions and paying premiums to the Pension Benefit Guaranty Corp. Saint Peter’s, which managed its plan under ERISA since 1974, first sought church-plan status in 2006. Many plan participants opposed that, and filed a class-action lawsuit in 2013 alleging ERISA violations.

In March 2013, the U.S. District Court in Trenton, N.J., rejected Saint Peter’s bid to dismiss the lawsuit, ruling that it could not have an exempt plan because it is not a church.

Mr. Ambro noted in his ruling that “a new wave of litigation … has presented an argument not previously considered by courts — that the actual words of the church plan definition preclude” organizations with ties to churches setting up exempt church plans.

“This is the first circuit court of appeals decision that has considered and determined the question of whether something other than a church can establish a church plan,” said attorney Karen Handorf, a partner at law firm Cohen Milstein Sellers & Toll, who represented the class-action plaintiffs in Laurence Kaplan vs. Saint Peter’s Healthcare System.

Saint Peter’s spokesman Phil Hartman referred calls to legal counsel at Sills Cummis & Gross, which declined to comment.

Karen Ferguson, director of the Pension Rights Center, called the decision “a terrific victory for thousands of orderlies, cafeteria workers, nurses and others who were told throughout their careers at Saint Peter’s that they were fully protected by federal law.”