When Procrastination Turns Into Fraud

2016-03-30 – Once upon a time in America, corporations were NOT the preeminent institution in the country. This can be seen in a 1974 law called the Employee Retirement Income Security Act (known as ERISA).

ERISA was enacted after decades of failures in corporate pension plans to protect the retirees. It established a variety of rules requiring employers to set aside the money they promised and requiring them to protect the money as if it were their own.

Churches and local government plans were excluded. You’d never see legislation like this in 2017, but in 1974, it was okay to lay down the law to corporations.

As it turned out, however, ERISA didn’t hurt the corporations—but the exclusion of churches and local governments did hurt the churches and local governments—or, more specifically, the exclusions hurt the employees of churches and local governments.

We all know the problems of local government pension plans. Here in Chicago and in the state of Illinois, the problem of under-funded pension plans has grown so large that it threatens us with bankruptcy.

How does this happen?

Employees of a city or a school board or some other government entity ask for a raise. The municipal employer says, “we can’t afford it.” The employees point out that they have had a raise for a decade, so the employer says, “instead of a raise, we’ll increase your pension.” A deal is made.

If the municipal employer were a private corporation, ERISA would require the money to be set aside. But the municipal employer isn’t a private corporation. It’s a governmental entity, so it is exempt from the ERISA requirement. So the deal it made with employees is doubly sweet. Employees were placated by a pension increase—and no money was spent. That will come in due time.

Unfortunately, every year the municipality delays putting money into the pension plan until one day someone realizes that the plan doesn’t have enough money to pay the promised pensions. And there’s no way to undo years of procrastination. The pension plan is heading toward bankruptcy.

Municipal governments aren’t the only ones to fall into this trap.

On Monday, the United States Supreme Court heard oral arguments in a case called Advocate Health Care Network v. Stapleton. This is really three consolidated lawsuits in which employees challenged church-affiliated hospitals over their pension plans because they are not maintained in accordance with ERISA rules. The hospitals claim they are entitled to the laws exemption for churches—even though they are huge businesses with tens of thousands of employees.

Now, I am not going to get into the issue of this case, which is whether the church exemption applies to a church-affiliated hospital—and whether it violates religious freedom to regulate their pension plans. You might be able to guess where my sympathies lie (hint: with the employees who work for years to earn a promised pension).

Today, the more interesting issue is how these exempt (or purportedly exempt) institutions think they are doing their employees a favor by promising pensions and not following through.

Look: pensions are a lovely idea. You work for many years, you retire, and you get a monthly check for the rest of your life. If your pension is set up right, the check will even increase each year to keep up with inflation. But it takes a large investment to make this happen. If you don’t put the money in, nothing’s coming out.

If an employer promises a pension but doesn’t put the money in it’s . . . well, maybe it’s procrastination to begin with, but at some point it becomes fraud. I don’t care if the employer is covered by ERISA or is exempt, it’s all the same thing. The employee is cheated.

Municipal governments shouldn’t be cheating their employees. Churches shouldn’t be cheating their employees and, certainly, church-affiliated hospitals shouldn’t. Exemption or no exemption, I have no sympathy for them.

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