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Courts

Former hospital workers sue Archdiocese of Newark in pension shortfall case

The Archdiocese of Newark was sued Tuesday in New Jersey state court by former employees of St. James Hospital alleging that it denied them at least $2.7 million in pension benefits.

The lawsuit filed in the Superior Court of Essex County in Newark seeks to have the Archdiocese take responsibility for the shortfall in the pension plan, which in 1990 was allowed by the Internal Revenue Service to be exempt from ERISA as a church plan.

Unlike typical church plan litigation, which seeks to have plans associated with church organizations abide by ERISA disclosure and funding rules, this lawsuit is claiming violations of state law, including breach of contract and breach of fiduciary duty. State law applied, the lawsuit says, when the plan sponsor elected to no longer be covered by federal law. The plaintiffs' group is 135 retirees who stopped working for St. James Hospital before becoming eligible to receive their pensions. The hospital has since closed.

According to the lawsuit, the Archdiocese reorganized the St. James Hospital of Newark Retirement Income Plan and other church-affiliated hospital pension plans into a single pension program for employees of all hospitals under its control of Cathedral Healthcare Services Inc., and there were enough assets in the CHS Plan to pay the pensions of all the current and former hospital employees until the Archdiocese transferred funds to other accounts.

The lawsuit goes on to claim that the Archdiocese "manipulated these pension accounts by adding other employee pension costs to the St. James subaccount," such as for services provided to other hospitals' employees. It also charges that the Archdiocese did not inform plan participants when it was no longer covered by ERISA.

When the Archdiocese sold CHS to Catholic Health East in 2008, the purchase agreement stipulated that the new owner was not responsible for the pensions. Money to pay the St. James Hospital retirees involved ran out in November 2017, one year after they were informed of the dwindling assets, the lawsuit said.

The Archdiocese's outside general counsel, Charles M. Carella, of Carella, Byrne, Cecchi, Olstein said in an email Thursday that the firm had only just received the complaint and was not in a position to comment.

On April 30, the U.S. District Court in Newark denied a motion by St. Peter's Healthcare System to dismiss a federal church plan lawsuit against it.

The order by Judge Michael A. Shipp allows the lawsuit to continue on procedural and subject matter jurisdictional grounds, not on the plaintiffs' claim that St. Peter's Healthcare System violates the Constitution's Establishment Clause by claiming church plan status. The latter claim will be addressed, Mr. Shipp said in the order, "if and when" the court determines the plan is subject to the exemption.

St. Peter's was one of three church-related pension plans whose status was upheld by the Supreme Court in June 2017, which found that pension plans did not have to be established by a church to be exempt from ERISA, as long as they are controlled by or associated with one.

Complaints in the cases against St. Peter's, Dignity Health and Advocate Health Care Network have since been amended. A settlement in the Dignity Health lawsuit is now pending approval in U.S. District Court in San Francisco.