Judge rules St. Joseph fund no longer qualifies as church plan

A U.S. District Court judge in Rhode Island ruled that the St. Joseph Health Services of Rhode Island Retirement Plan does not have a church-plan exemption from ERISA because it is no longer affiliated with a relevant sponsor.

The Sept. 16 ruling by Judge William E. Smith in Providence was the latest twist in a long-running battle between plan participants and a series of plan sponsors, including Prospect CharterCare LLC, which no longer owns the hospital.

Most of the lawsuits were settled with the promise of as much as $46 million being contributed to the plan.

Mr. Smith’s order summarized the background of the case, Del Sesto vs. Prospect CharterCare LLC, which involves allegations of ERISA fraud, contractual breaches and more: “Plaintiffs alleged that the hospitals involved and their various corporate parents fraudulently concealed that the plan was grossly underfunded, then executed a complicated hospital sale and reorganization designed to leave the plan and its obligations dangling from a corporate entity which had been stripped of all its assets.”

This latest ruling involves defendants previously affiliated with the hospital — Diocesan Administration Corp., Diocesan Service Corp. and the Roman Catholic Bishop of Providence — who were not part of the settlement.

Since that connection no longer was there, Mr. Smith awarded partial summary judgment to those three remaining defendants.

Stephen Del Sesto, a plaintiff and plan receiver, had argued that the pension plan should be reclassified and administered as if it had been covered by ERISA for years, and to have the Pension Benefit Guaranty Corp. assume responsibility for it.

Mr. Smith ruled that the pension plan didn’t meet the statutory requirements for church-plan status during the relevant time period because it wasn’t maintained by a “principal purpose organization” affiliated with a church and primarily tasked with managing employee benefits.

Mr. Smith also said the court “expects that this determination narrows the viable claims,” but denied the remaining defendants motion to dismiss, and ordered the parties to return to mediation.

Norman Stein, senior policy adviser to the Pension Rights Center, suggested that one possible reason for the separation of defendants is that damages under ERISA can be less than state remedies. “It may be that people who still have liabilities may prefer federal court because ERISA has limited remedies,” Mr. Stein said in an interview.