WASHINGTON – On Friday, the U.S. Supreme Court announced that it will hear three cases to decide whether pension plans established by religiously-affiliated nonprofit healthcare systems can receive the same treatment as plans established by churches. In all three cases, lower courts have ruled that the plans are not exempt from federal law and must comply with the Employee Retirement Income Security Act (ERISA).
“The Supreme Court’s decision in these three cases will affect hundreds of thousands of current and former employees of hospitals, social services agencies, educational institutions, and other religiously-affiliated nonprofit organizations whose pension plans were not established by and are not backed by a church,” said Karen Ferguson, director of the Pension Rights Center.
Since its enactment in 1974, ERISA has included a provision exempting pension plans established and maintained by churches for their own employees. In 1980, Congress expanded this provision to allow plans established by churches to also include employees of church-affiliated hospitals, schools and other nonprofit organizations. In addition, it included a provision to clarify that plans created by churches could continue to be administered by church-created financial institutions known as “church pension boards.”
In a series of rulings, the Internal Revenue Service interpreted the church pension board provision to permit religiously-affiliated nonprofit organizations that had established their own pension plans to apply for private letter rulings stating that they were exempt “church plans.” Plans that received these rulings no longer had to comply with funding or other ERISA requirements. These plans also received refunds of premiums they had paid to the federal pension insurance program, leaving the employees covered by these plans without the crucial federal insurance protections they had been guaranteed. The Supreme Court will decide whether the IRS interpretation was correct.
The Third, Seventh, and Ninth Circuit Courts of Appeals found that the IRS rulings were based on a misinterpretation of the law.
Many of the retirees the Center has worked with spent their entire careers under pension plans fully protected by federal law, only to learn after they retired that their former employers had applied for and received IRS private letter rulings declaring that their plans were unprotected “church plans.” In fact, until a change in IRS procedures five years ago, employees were not even told that their plans had applied for “church plan” status.
Some retirees have already lost all or part of the pensions they had earned. Others are fearful that this could happen to them. “If I had known my pension wasn’t guaranteed, I would have found another way to save for retirement,” said Sue Fritz, who worked as a nurse at Saint Peter’s University Hospital for 25 years. “To have the promises made to me by Saint Peter’s negated for their financial gain, and after all my hard years of work, is devastating,” says Fritz.
The court will hear oral argument in the three cases,Saint Peter’s Healthcare v. Laurence Kaplan, Advocate Health Care v. Maria Stapleton, and Dignity Health v. Starla Rollins, in March 2017.
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