It could be another trillion dollars in unfunded Defined Benefit pensions either picked up by taxpayers or defaulted upon. Fox Rorthschild’s newsletter For Your Benefit presents the situation in an article on page 4:
In early December, the United States Supreme Court announced that it will hear three consolidated cases to decide whether pension plans established by religiously-affiliated employers are entitled to the same treatment as plans established by churches. All three cases involve defined benefit pension plans maintained by church-affiliated healthcare systems; in each case, lower courts have ruled that the plans are not exempt from ERISA and must comply with all plan qualification requirements.
Three years ago, participants, concerned about their benefits (and knowing that PBGC guarantees will not be available), began to file lawsuits claiming that the plans maintained by their religiously-affiliated employers should not be church plans and should not be exempt from ERISA. The Supreme Court agreed to hear these cases because the appellate courts in the Third, Seventh and Ninth Circuits have ruled in favor of the plaintiff employees, while district courts in other circuits have taken the contrary position.
A decision that plans maintained by religiously-affiliated employers are not church plans reportedly could affect millions of employees across the country and trigger pension funding liabilities in the billions of dollars.
Today we got:
Text of Amicus Brief of U.S. to Supreme Court on Definition of Church Plan (PDF)
U.S. Department of Labor [DOL]; Pension Benefit Guaranty Corporation [PBGC]; U.S. Department of the Treasury; and U.S. Department of Justice
Why are these government agencies so anxious to keep these ‘church’ plans exempt from ERISA?
Because they might be the worst funded Defined Benefit plans in the country and, unlike government or union plans which have some value assigned to liabilities in either a CAFR or 5500 filing, the only place these church plan liabilities appear is in Schedule D, Part X of the sponsor’s 990 form.
Without any funding requirement many of these plans may already be in pay-as-you-go mode with massive unfunded liabilities that would stretch the resources of government agencies that could be charged with overseeing their solvency. Hence, the reason for punting.
The three church plans involved in this Supreme Court case, with links to their latest 990 filings including the page with pension obligations, are:
- New Jersey-based St. Peter’s Healthcare System – $112,548,076
- Illinois-based Advocate Health System – $114,939,487
- California-based Dignity Health – $688,650,936
Were these church plans to suddenly become subject to ERISA funding rules and PBGC coverage (with those outlandish premium payments) the choice, especially in a volatile insurance marketplace, could be clear cut:
- Stop funding the plans.
- Let PBGC take over.
- Get those massive pension liabilities off your books.
Will this happen? It’s a coin flip as the facts of the case are open to interpretation/speculation. According to the government’s brief (page 3) the reason for the exemption is dubious:
ERISA generally applies to any benefit plan “established or maintained” by a private employer. But Congress exempted “church plans,” in part because “the examination s of books and records” required under ERISA “might be regarded as an unjustified invasion of the confidential relationship that is believed to be appropriate with regard to churches and their religious activities.”
with the main point of contention (page 13) being:
The only question before the Court is whether an otherwise-qualifying plan maintained by a principal-purpose organization must be “established” by a church in the first instance. As the agencies responsible for administering ERISA have concluded for more than three decades, the answer to that question is no.
But if the Supreme Court decides* that answer is ‘yes’ then the agencies responsible for administering ERISA will have to deal immediately with liabilities of an indeterminate amount that have been escalating without independent oversight for more than three decades.
* Oral arguments scheduled for March.