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Dec. 2 — The U.S. Supreme Court will hear a trio of cases asking whether large hospitals can use a religious legal exemption to avoid fully funding their pension plans, which workers claim are underfunded by hundreds of millions of dollars.
The cases have roots in a three-year litigation push involving more than two dozen religiously affiliated hospitals. In all, the lawsuits claim that more than 300,000 hospital workers face a pension shortfall of about $4 billion because hospitals have wrongly designated their pension plans as “church plans” exempt from the Employee Retirement Income Security Act.
The cases are noteworthy for pitting three federal appeals courts against the Internal Revenue Service, which has authority to issue determination letters blessing a hospital’s decision to treat its pension plan as an ERISA-exempt church plan. In ruling against Advocate Health Care Network, Saint Peter’s Healthcare System and Dignity Health, the courts gave little weight to the IRS letters approving of each hospital’s decision to run its pension plan exempt from ERISA.
The cases are Advocate Health Care Network v. Stapleton, U.S., No. 16-74, cert. granted 12/2/16 ; Saint Peter’s Healthcare Sys. v. Kaplan, U.S., No. 16-86, cert. granted 12/2/16 ; and Dignity Health v. Rollins, 9th Cir., No. 16-258, cert. granted 12/2/16 .
The Supreme Court’s ultimate decision will affect about 30 pending lawsuits challenging how religiously affiliated hospital run their pension plans. Since this litigation effort began in 2013, district judges have issued mixed rulings, but all three appellate courts to weigh in—the U.S. courts of appeals for the Third, Seventh and Ninth circuits—have ruled against the hospitals. Another appeal is pending in the Tenth Circuit, with arguments scheduled for January 2017.
In some cases, hospitals have agreed to pay hefty settlements. Washington-based Providence Health & Services announced a $352 million deal in October and Connecticut’s Saint Francis Hospital agreed to a $107 million settlement. Trinity Health Corp., Ascension Health and Alabama’s Baptist Health System Inc. also agreed to multi-million dollar settlements.
Although the cases involve eye-catching sums of money, they turn on a seemingly banal question of statutory interpretation: must a pension plan be both “established and maintained” by a qualifying church-connected entity in order to claim the legal exemption, or is the exemption available to plans merely “maintained” by a qualifying entity?
The answer to that question will have big consequences for hospital workers’ retirement benefits. A pension plan subject to ERISA must comply with strict funding requirements and obtain government-backed insurance. An ERISA-exempt church plan is free from those obligations, leaving workers’ benefits much more vulnerable to their employer’s financial condition.
Mark E. Chopko, a partner with Stradley Ronon in Washington and chair of the firm’s nonprofit and religious organizations group, praised the court’s decision to hear the cases.
“There couldn’t be a stronger or better case for Supreme Court review,” Chopko told Bloomberg BNA. “The fact that the court decided to answer the question once and for all is a good thing.”
Chopko said he welcomed a clear answer to these questions by the Supreme Court, because recent appellate decisions have called into question “hundreds” of IRS determination letters authorizing religiously affiliated hospitals and other employers to run their pension plans free from ERISA.
Chopko’s firm has represented religious groups that filed briefs favoring the defendant hospitals in some church plan cases.
Robert Rachal, an attorney with Holifield Janich Rachal & Associates PLLC in New Orleans who has defended hospitals in other church plan lawsuits, also praised the Supreme Court for stepping in.
“It makes so much sense from a systemic point of view to get one final answer on this question,” Rachal told Bloomberg BNA. “It really is a great benefit to have the Supremes step in and give one clear answer on these issues.”
In addition to questions of statutory interpretation, Rachal said that the cases also present “lurking” questions of agency deference. According to Rachal, it’s possible that the court could agree with the hospital workers’ interpretation of ERISA but still rule for the hospitals on remedy issues based on their reasonable reliance on IRS letters authorizing them to run ERISA-exempt church plans.
Karen Ferguson, director of the Pension Rights Center in Washington, called these cases “tremendously important.” She told Bloomberg BNA in an e-mail that it’s not just hospital workers whose benefits are at stake, but also “hundreds of thousands of current and former employees of social services agencies, educational institutions, and other religiously-affiliated nonprofit organizations whose pension plans are not established by or backed by a church.”
Ferguson added that, in most cases, these workers were “fully protected by federal pension law” for most of their careers.
“It was only when their employers requested and received IRS private letter rulings stating that they were ‘church plans’ that they lost these protections, which, among other things, means that their plans are no longer adequately funded, and their benefits are no longer protected by the federal pension insurance program.”
The Pension Rights Center has filed briefs supporting hospital workers in several church plan cases.
Peter K. Stris, a plaintiff-side litigator with Stris & Maher LLP who has argued ERISA cases before the Supreme Court, also emphasized the “significance consequences” of these cases.
“The scope of ERISA’s church plan exception is an issue that has significant consequences,” Stris told Bloomberg BNA in an e-mail. “I believe that the three courts of appeals to address this issue got it right. And I’m hopeful that the Supreme Court agrees.”
The Supreme Court announced its decision Dec. 2. The three cases will be consolidated and argued together, the court announced.
The three hospitals are represented by Lisa S. Blatt and Elisabeth S. Theodore of Arnold & Porter LLP. The hospital workers are represented by Lynn L. Sarko, Matthew Gerend, Ron Kilgard and Laurie B. Ashton of Keller Rohrback LLP in Seattle and Phoenix and Karen L. Handorf and Michelle C. Yau of Cohen Milstein Sellers & Toll PLLC in Washington.
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