Archdiocese Accused of Filing for ‘Church Plan’ Status to Avoid Pension Funding

Former employees of Saint James Hospital filed a lawsuit in the Superior Court of Essex County against the Archdiocese of Newark, New Jersey, over pension plan benefits.

The case is similar to other cases that have been filed on the federal level challenging a pension’s “church plan” status, but this complaint alleges that the actions taken by the Archdiocese violate New Jersey contract and trust law.

According to the complaint, filed on behalf of approximately 135 individuals, the Archdiocese promised guaranteed benefits for life, but the benefit payment for the plaintiffs and other affected retirees stopped in 2017. This is due to the Archdiocese failure to fund the plan.

The pension plan was operated under the Employee Retirement Income Security Act (ERISA) following its passage in 1974. In 1988, the Archdiocese notified past and present employees that it planned to terminate the plan, but plan termination was not approved by the Pension Benefit Guaranty Corporation (PBGC) because the plan did not have enough assets to pay all covered benefits.

That’s when, the plaintiffs allege, “the Archdiocese developed a strategy to escape PBGC scrutiny and the protections of ERISA.” In 1990, the Archdiocese sent a letter to the IRS asking it to deem the pension plan a “church plan” under ERISA. The IRS granted the request.

“The Archdiocese concealed the IRS ruling from plan participants and did not provide the participants new plan documents describing the rules that governed the plan in the absence of the ERISA rules,” the complaint says.

Around 1997, the Archdiocese then terminated the pension plan. According to the plaintiffs, though it had $20 million in surplus assets, it did not use that to plug a $2.7 million deficit in the pension plan funding. The Archdiocese transferred the assets of the plan to a non-guaranteed account at Transamerica.

The plaintiffs allege that Transamerica tried numerous times to warn the Archdiocese that it was running out of money to fund pension benefit payments, but the Archdiocese took no action. On November 3, 2016, Transamerica sent a letter to the affected retirees which stated: “We regret to inform you that Transamerica has not received any deposits to the plan for a number of years. As a result, the plan’s assets are diminishing and we anticipate that they will be depleted in approximately five to seven months, depending on the investment performance of the assets. Once the plan assets have been entirely depleted, no further pension payments will be processed by Transamerica.”