Pension Plan Suit Against Archdiocese Will Move Forward
Among other things, the archdiocese of Newark was accused of filing for "church plan" status to avoid having to fund the pension plan of hospital employees.
A judge for the state of New Jersey has denied a motion to dismiss a lawsuit against the Archdiocese of Newark alleging mismanagement of a defined benefit (DB) plan for employees at Saint James Hospital.
According to news reports, a promissory estoppel count, alleging that the archdiocese promised to provide lifetime pension payments and that the plaintiffs relied on those promises in deciding to work for the hospital system, was determined by the judge to be sufficiently pled.
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.
Around 1997, the Archdiocese 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. Transamerica sent a letter to the affected retirees which stated the plan’s assets were diminishing and it anticipated that they would be depleted in approximately five to seven months. Transamerica told the retirees that “once the plan assets have been entirely depleted, no further pension payments will be processed by Transamerica.”
The news reports say that during a hearing about the motion to dismiss filed by the archdiocese, the judge rejected the argument that the former participants’ complaint did not include enough facts to state a claim. He noted that those would “be developed in discovery.”
Unlike Employee Retirement Income Security Act (ERISA) lawsuits that are argued in federal courts, this case is playing out in state court, alleging that the actions taken by the Archdiocese violate New Jersey contract and trust law.