Hospitals using church pension plans to avoid some obligations

A loophole in the way pension plans are structured for some not-for-profit hospitals could allow the organizations to escape some or all of their pension obligations, the Washington Post reported.

For example, St. Mary's Hospital in Passaic, N.J., was able to deliberately underfund its pension plan and not rely on government insurance to back it up, according to the Post. That's because St. Mary's pension system is under a federally recognized church plan, a change the hospital made in 2001. The pending purchase of the hospital by for-profit chain Prime Healthcare will not change that situation, leaving only about half of the pension obligations covered.

Church-affiliated pension plans were established in the early 1980s as a way of allowing religious institutions to avoid fiscal interference from the federal government. But hospitals and other non-profits have availed themselves of the law. Among them are Franciscan St. Anthony Health in Indiana and another New Jersey provider, St. Peter's Healthcare System in New Brunswick.

St. Peter's recently received approval from the Internal Revenue Service to make the switch to a church plan, even though letters from former executives warned the agency that the pension plan was never established or operated by a church, according to the Post. It is currently underfunded by $73 million.

According to a report released earlier this year by Standard & Poor's, pension obligations are dragging down the bottom lines of not-for-profit hospitals.

"We'd like to hope that everything will be fine, but experience suggests that there's a real risk here that people could lose a very significant portion of the benefits they have earned and were promised," Karen Ferguson, director of the Pension Rights Center, told the Post.

To learn more:
- read the Washington Post article

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