Settlement Agreement Reached in Church Plan Challenge

A federal judge has preliminarily approved a settlement agreement between participants of the St. Joseph’s Hospital and Medical Center pension plan and St. Joseph’s Hospital.

As with many similar complaints, the lawsuit challenges whether the plan was really a “church” plan and not subject to Employee Retirement Income Security Act (ERISA) funding rules.

In the order for preliminary approval, a judge for the U.S. District Court for the District of New Jersey certified a class, or plaintiffs. The settlement agreement says, “Nothing herein shall be construed as an agreement that the Plan is not properly treated as a Church Plan or that the Plan is subject to ERISA.” In spite of this, the terms of the agreement include many ERISA-like provisions.

Under the terms of the agreement, the defendants are obligated to contribute an aggregate amount of $42.5 million to the plan no later than 60 days after the agreement is executed or at any time prior. They may contribute that sum either directly to the plan or to an escrow account and then transfer these proceeds—including interest—to the plan 45 days after the agreement becomes final.

Additionally, at their discretion, the defendants may make further contributions to the plan at any time.

If, during the seven years after the agreement becomes final, the plan’s trust fund becomes insufficient to pay benefits as they are due, the defendants will need to shore up the trust fund so the benefits can be paid. In the event of a plan change such as a merger or consolidation during that time, participants and beneficiaries will be protected by entitlement to the same, or greater, accrued benefits under the terms of the plan as before. St. Joseph’s may amend or terminate its plan at any time, provided this will not result in the reduction of any participant’s accrued benefits as determined by the plan document.

Should the plan at some point be determined to fall under ERISA, it will then need to comply with the act’s applicable provisions.

Plan Administration Terms

Contemporaneous with plan amendments that will close and freeze the plan on or before December 31, 2018, the plan administrator will need to establish procedures concerning plan administration and notices, as set forth in the settlement agreement. At the defendants’ sole discretion, any and all reporting and disclosure to plan participants and/or beneficiaries may be accomplished via electronic dissemination, by electronic posting on defendants’ intranet site or via hard copy. If a participant requests a disclosure by hard copy, the plan administration will provide it within a reasonable time.

The plan documents will need to add provisions for taking any of the following actions that the documents, as of yet, don’t include: designate a named fiduciary; describe the procedure for establishing and carrying out the current funding policy and method; describe a procedure for allocation of administration responsibilities; provide a procedure for plan amendments and identifying a person(s) with authority to make such amendments; specify the basis on which payments are made to and from the plan; and provide a joint and survivor annuity payment option for participants and their spouses.

In addition, by the close of 2018, the plan administrator or its designee will need to have prepared a summary plan description (SPD) comprehensible to the average participant. The settlement agreement spells out in detail what the SPD should include.

For current and former employees, the plan administrator will need to prepare pension benefit statements, as it does now, distributing those electronically or in hard copy, at least once every three years. Other participants and beneficiaries could make a written request for a copy of a pension benefit statement, to be provided within a reasonable time, in either format, at St. Joseph’s discretion.