Moody's: Court Decision Bad News for Health Systems With Church Pension Plans

A federal district judge's ruling last month on church pension plans could have widespread negative effects for nonprofit hospitals and health systems, according to a Moody's Investors Service report.

On March 31, a judge determined a defined benefit pension plan maintained by Saint Peter's University Hospital in New Brunswick, N.J., doesn't qualify as a "church plan" under the Employee Retirement Income Security Act.

Religiously affiliated organizations with church plans can operate pensions without federal oversight, according to the report. Without a church plan exemption, organizations must meet federal requirements that they keep their pension plans funded to a certain level. "The funding requirements are often substantial and can have the effect of reducing cash balances," the report states.

Therefore, last month's court ruling is not only negative for Saint Peter's, but could also have a detrimental effect on other hospitals and health systems with church plans. The court decision concerning Saint Peter's pension plan and a similar 2013 ruling that San Francisco-based Dignity Health's plan isn't a church plan could "open the floodgates" for even more legal challenges against healthcare providers with church plans, according to Moody's.

Dignity Health and Saint Peter's are appealing the rulings on their plans. Several other healthcare organizations — Downers Grove, Ill.-based Advocate Health Care Network, St. Louis-based Ascension Health, Livonia, Mich.-based CHE Trinity Health, and Englewood, Colo.-based Catholic Health Initiatives are also dealing with similar pension plan lawsuits, according to the report.

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