A putative class action alleges that St. Peter’s Healthcare System of New Brunswick improperly claims a religious exemption that has resulted in its pension plan being $70 million short.
The suit, Kaplan v. St. Peter’s Healthcare System, 13-cv-2941, filed in federal court on Tuesday on behalf of 4,700 participants, says the hospital should be following minimum-funding rules dictated by the Employee Retirement Income Security Act.
St. Peter’s claims its plan is exempt from ERISA because it meets that act’s exemption for a "church plan."
But the suit says St. Peter’s is not controlled by or affiliated with the Catholic church under ERISA’s definition.
St. Peter’s allegedly does not require prospective employees to be Catholic; its residency program provides instruction in tubal ligation and contraception, which are forbidden by the Catholic Church; it does not promote the Catholic faith with patients; and it is affiliated with two nonreligious institutions, Drexel University’s medical school and the Children’s Hospital of Philadelphia.
The plan was operated as an ERISA-covered plan from its inception in 1974 until 2006, the suit says.
In January 2006, participants were told the plan was covered under ERISA, but later that year the hospital applied to the Internal Revenue Service for a church-plan exemption, the suit says.
But St. Peter’s did not notify its employees of that application until November 2011, the suit says. The IRS has not issued a determination on the application.
In 2010, St. Peter’s closed its plan to new employees and offered them a 401k that operates under ERISA and does not claim church-plan status.
The suit was filed by Laurence Kaplan, who worked at the hospital from 1985-99 and participates in the plan.
It seeks relief under Section 502(A)(3) of ERISA, which authorizes a participant or beneficiary to obtain equitable relief to enforce the act and to enjoin violations. The suit seeks orders directing St. Peter’s to bring the plan into compliance with ERISA.
In addition, the suit says St. Peter’s failed to provide class members with summary descriptions and annual reports since at least 2006, in violation of ERISA, and it seeks $110 per plan participant for every day of that violation.
The suit also seeks declaratory relief that the hospital’s exemption violates the Establishment Clause of the First Amendment of the Constitution and is therefore void.
The Establishment Clause mandates government neutrality on religious matters, but the exemption, as claimed by St. Peter’s, "is an attempt to extend the accommodation beyond churches and associations of churches, to St. Peter’s — a nonprofit hospital conglomerate," according to the suit.
Such an extension harms St. Peter’s workers and puts hospital competitors at an economic disadvantage, the suit says.
The suit was filed by Karen Handorf of Cohen, Milstein, Sellers & Toll in Washington, D.C. An outside public relations representative for the firm, Pam Avery, says Handorf and the firm decline to discuss the case.
A spokesman for St. Peter’s, Phil Hartman, says the hospital will not comment.
Cohen Milstein filed similar cases against Catholic health-care providers in early April.
It sued in the Eastern District of Pennsylvania against Catholic Health East of Newtown Square, Pa., a chain of 35 hospitals that includes Our Lady of Lourdes Medical Center in Camden, Lourdes Medical Center of Burlington County in Willingboro, St. Michael’s Medical Center in Newark and St. Francis Medical Center in Trenton.
The firm also filed suits in the Northern District of California against Dignity Health, the operator of 39 hospitals, and in the Eastern District of Michigan against Ascension Health, operator of 70 hospitals.
The recent crop of litigation over the church-plan designation comes just as the IRS has reversed a decision in another New Jersey case over a hospital that claimed that designation.
In 2003, the IRS said the Hospital Center at Orange could claim the church-plan designation. But in March, the IRS reversed its decision.
The IRS ruling in the Orange case also expanded employers’ duty to inform employees when they seek to convert to church-plan status and to tell employees about their right to contest it, says Nancy Hwa, communications director at the Pension Rights Center in Washington, D.C.