A morale booster for workers and retirees worried about pensions, but a long way to go

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New rulings against Catholic hospital chains on both coasts have intensified a faceoff between religiously affiliated employers and workers who are alarmed by the companies' efforts to avoid insuring or funding their pensions.

A federal judge in New Jersey ruled Monday that a loophole in federal pension law exempting churches does not extend to hospitals and other employers not directly controlled by religious orders. The opinion, echoing one issued in December in a case involving a California hospital chain, allows an employee's lawsuit to move forward against the New Jersey operator, St. Peter's Healthcare System.

While the rulings hinge on a little-known bit of law, the debate over so-called "church plans" could affect some of the nation's largest hospital networks and thousands of people counting on them for retirement benefits.

That debate remains far from settled. But the two judges' opinions are notable for their stiff questioning of a practice that has alarmed some workers and retirees.

A pension boils down to a promise. Federal law requires most private employers with pension plans to contribute to them and insure them in case they can't meet their obligations. But Congress crafted an exemption for churches to protect them from government interference in their finances. Hospitals and other religiously affiliated employers have cited that exemption to convert their pensions to "church plans," including some that have let retirement funds dwindle.

"Opening the door to expand the church-plan exemption to this extent would place more employees at risk of having insufficient benefits upon retirement," U.S. District Judge Michael A. Shipp wrote in the opinion issued Monday, denying St. Peter's request to dismiss the case.

The opinion recognizes the importance of federal benefits law "and the consequences of what allowing this exemption would do to the retirees and employees," said Nancy Hwa, a spokeswoman for the Pension Rights Center, a Washington, D.C.-based advocacy group. "There's a lot of good language in this decision and we hope other judges are paying attention."

But a lawyer for the New Brunswick, N.J., hospital operator noted that the Internal Revenue Service has repeatedly interpreted the "church plan" exemption as covering religiously affiliated employers, and that other courts have agreed.

"Saint Peter's is disappointed in the ruling," said Jeffrey Greenbaum, the attorney for the hospital. "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."

Greenbaum said the hospital system was "still considering the next steps" in the case.

St. Peter's, successor to a single hospital founded by an order of nuns, operated its pension plan for many years according to federal law, fulfilling requirements to insure and maintain the benefits. But in 2006 it asked regulators to let it operate as a church plan, although workers said they were not informed until 2011.

"It never was" a church plan, said Jim Towns, 73, who retired after a career as a medical photographer at St. Peter's and now lives in Gainesville, Ga. "If they find a way around not having to fund it ... the pensioners will maybe have less or maybe none. You don't know."

The judge's opinion in the New Jersey case largely echoes another issued late last year in a worker's lawsuit against San Francisco-based Dignity Health, which operates 40 hospitals in California, Nevada and Arizona, along with 300 other facilities and has 60,000 employees.

The suits are among six brought on behalf of workers against five Catholic hospital chains and another filed last month against Advocate Health Care Network, based in Downers Grove, Ill., which operates 12 hospitals in its home state and is affiliated with the United Church of Christ and the Evangelical Lutheran Church in America.

The rulings by the courts in New Jersey and California, while preliminary, expose the tension built in to a law that is simultaneously trying to protect the finances of workers and churches, said Thomas E. Clark Jr. of FRA Plan Tools, a consultant to investment advisers and other pension service providers. Clark said the rulings would likely give pause to other employers considering shifting their pensions to church plans.

But while the rulings may boost the confidence of some workers at the hospitals, resolving the issue could be years away, he said.


Adam Geller can be reached at features@ap.org. Follow him on Twitter at https://twitter.com/AdGeller