Catholic Health Wins Church Plan Battle in Tenth Circuit

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By Jacklyn Wille

Denver hospital system Catholic Health Initiatives can run its pension plan as a “church plan” exempt from federal funding and insurance requirements, a federal appeals court ruled.

The Catholic Health pension plan—which workers claimed was underfunded by more than $892 million—qualifies as a church plan exempt from the Employee Retirement Income Security Act, because it’s maintained by a “principal-purpose organization” associated with a church, the U.S. Court of Appeals for the Tenth Circuit ruled Dec. 19. Moreover, ERISA’s church plan exemption is constitutional and doesn’t violate the First Amendment’s Establishment Clause, the Tenth Circuit said.

The decision marks the first time a federal appeals court has considered ERISA’s church plan exemption since the U.S. Supreme Court ruled in June that ERISA allows hospitals like Catholic Health to treat their pension plans as church plans exempt from the statute’s funding, disclosure, and insurance requirements. Prior to the Supreme Court’s ruling, dozens of religiously affiliated hospitals were sued over their pension plans. Workers said the plans became severely underfunded because they were treated as ERISA-exempt church plans despite failing to qualify for the statutory exemption.

Several hospitals agreed to multimillion-dollar settlements, including Washington-based Providence Health & Services ($352 million), Connecticut-based Saint Francis Hospital ($107 million), Trinity Health Corp. ($75 million), Ascension Health ($8 million), and Alabama-based Baptist Health System Inc. ($11 million).

Catholic Health runs 92 hospitals and many other health-care facilities throughout 18 states. Its pension plan has more than 90,000 participants and almost $3 billion in assets, according to the Tenth Circuit.

No Government Entanglement

In specifically holding that ERISA’s church plan exemption doesn’t violate the Establishment Clause, the Tenth Circuit went further than the Supreme Court did in its June opinion, which rested largely on statutory interpretation. The exemption is constitutionally permissible because it has the purpose and effect of avoiding government entanglement with religion, according to the Tenth Circuit.

Moreover, exempting church-connected pension plans from certain statutory requirements doesn’t constitute a government endorsement of religion, and the exemption itself doesn’t convey a message of endorsement or approval, the court said.

Just last week, the federal government made a similar argument in favor of the exemption’s constitutionality in a memorandum filed in a pending case against Mercy Health.

Statute Satisfied

The Tenth Circuit also considered whether the Catholic Health plan itself satisfied the statutory requirements for claiming church plan status. Part of this analysis was dictated by the Supreme Court’s recent decision, which held that a pension plan need not be “established by” a church in order to qualify for the exemption.

Beyond that, the statute allows a church plan to be “maintained by” a church-associated organization that has the “principal purpose” of administering benefits for church employees. The Catholic Health plan qualifies, the Tenth Circuit said, because it’s maintained by an internal benefits committee and because it provides benefits to employees of a nonprofit organization associated with a church.

Chief Judge Timothy M. Tymkovich wrote the decision, which was joined by Judges Robert E. Bacharach and Nancy L. Moritz.

The Catholic Health employees are represented by Keller Rohrback and Cohen Milstein Sellers & Toll. Catholic Health is represented by Groom Law.

The case is Medina v. Catholic Health Initiatives , 10th Cir., No. 16-1005, decision affirming ruling for defendant 12/19/17 .

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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