Newark, NJ Roman Catholic Archdiocese Facing Class Action Over Alleged Underfunding of Hospital System Pension Plan

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The Roman Catholic Archdiocese of Newark, New Jersey faces a proposed class action lawsuit filed on behalf of roughly 135 former employees of its hospital system who were allegedly deprived of at least $2.7 million in pension payments.

As the 19-page case out of Essex County Superior Court tells it, the pension plan offered to St. James Hospital employees by the Archdiocese promised the workers guaranteed pension payments for life after retirement. The plan’s assets, the case says, were held in a “guaranteed pension account” at a major insurer, with participants’ payments backed by the Pension Benefit Guaranty Corporation (PBGC) in the event the plan was ever terminated with insufficient assets.

According to the lawsuit, the Archdiocese in the late 1980s chose to replace pension plans for hospital system employees with “cheaper retirement arrangements.” On October 24, 1988, past and present hospital system employees reportedly received a letter from the Archdiocese informing them that it wanted to terminate the pension plan. Those who received the letter, according to the suit, were assured that the plan’s termination was subject to approval from both the PBGC and the IRS; that the termination “will not reduce or adversely affect in any way” already vested benefits to which plan members were entitled to receive upon retirement; and that in the plan appeared to be sufficient assets to pay out all benefits commitments.

That last assurance, the lawsuit alleges, was false: 

“There was not in fact enough money in the [St. James Hospital] Plan to cover the full cost of the pensions promised to its participants and beneficiaries.”

The case stresses that while the Archdiocese weighed whether to cancel the pension plan, participants’ benefits were protected under the Employee Retirement Income Security Act (ERISA) and by both the plan’s insurer and the PBGC.

At the end of the day, the case alleges, the deficit in the St. James Hospital pension plan led the Archdiocese to reverse course on canceling the plan, in part because the PBGC would not allow its shuttering unless enough funds existed to cover all promised benefits, not to mention that the Archdiocese itself “did not want to spend the money” to guarantee past and current employees’ pension coverage. 

The lawsuit claims that instead of putting money into the pension plan, the Archdiocese “developed a strategy to escape PBGC scrutiny” and ERISA regulations. The Archdiocese, without informing participants and their beneficiaries, sent to the IRS a letter requesting out of ERISA’s protections due to the pension program’s status as a “church plan,” the lawsuit says, a request that was granted in November 1990. 

“After that,” the case reads, “the Archdiocese ignored the protections of ERISA and the agencies enforcing it in its actions with respect to the SJH Plan and its participants and beneficiaries.”

After moving the St. James Hospital employees’ pension assets into a single program called Cathedral Health Services, the Archdiocese moved in 1996-1997 to terminate the previously ERISA-protected plan, the complaint says. Despite the plan having an overall surplus of $20 million on its books at this time, the Archdiocese maintained the plan for current and former St. James Hospital employees showed a $2.7 million deficit.

“The Archdiocese did not want to use the $20 million in surplus assets to cover that deficit,” the lawsuit claims, “and instead decided to cover the deficit by reducing the pension benefits of the St. James and System participants.”