As Church Plan Battle Heats Up, All Eyes on Supreme Court

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Jacklyn Wille

Sept. 21 — The battle is heating up between religiously affiliated hospitals and workers who say their pensions are chronically underfunded, and with two weeks to go before its fall term begins, the U.S. Supreme Court has hinted that it may be interested in addressing this dispute.

Three hospitals— Advocate Health Care Network, Saint Peter’s Healthcare System and Dignity Health—have asked the justices to undo appellate court rulings that arguably force them to bring their underfunded pensions into compliance with federal law. The case filed by Dignity Health offered the justices an opportunity to signal whether they might be interested in resolving this billion-dollar battle. On Sept. 21, Justice Anthony M. Kennedy did just that when he granted Dignity Health’s request to hit the pause button on the U.S. Court of Appeals for the Ninth Circuit’s ruling against the hospital ( Dignity Health v. Rollins , U.S., No. 16-258, order staying mandate 9/21/16 ).

This move by Kennedy will stop the Ninth Circuit’s decision from taking effect until the Supreme Court decides whether to hear the case. This is an infrequent occurrence that might signal Kennedy’s belief that the justices will vote to hear the case, Peter K. Stris, an ERISA litigator with Stris & Maher LLP in Los Angeles who has argued several times before the Supreme Court, told Bloomberg BNA.

In each of the three cases, courts found that the hospitals couldn’t treat their pension plans as “church plans” exempt from the Employee Retirement Income Security Act, giving a big boost to the nearly three dozen recently filed lawsuits challenging the way large hospitals fund their plans. In all, these lawsuits allege that 247,000-plus hospital employees are facing a $3.5 billion shortfall in their pensions because the hospitals haven’t adequately funded the plans.

This sidelines dispute over when the Ninth Circuit’s ruling takes effect began earlier this month, when that court refused to put its decision on hold pending Supreme Court review, a move that Dignity deemed “inexplicable.” Dignity asked Kennedy to override the Ninth Circuit’s decision, and the Dignity workers fired back, arguing that the ruling should take immediate effect because the odds of Supreme Court review were low.

Both Dignity and Advocate employees have told the Supreme Court it should deny the hospitals’ appeals because the federal appellate courts are in agreement on this issue. In support, they cite recent rulings by the Third, Seventh and Ninth circuits barring Saint Peter’s, Advocate and Dignity from using ERISA’s church plan exemption.

Not everyone agrees that the federal appellate courts are of one mind on the church plan question. The hospitals seeking Supreme Court review argue that the circuits are split on this question, pointing to a 2001 decision by the Fourth Circuit and a 2006 decision by the Eighth Circuit. Both of these cases involve ERISA’s church plan exemption, but they concern disability plans rather than pension plans, and they predate the current litigation effort over hospital pension plans by at least seven years.

The hospitals’ assertion of a circuit split may have gotten a boost Sept. 20, when a federal judge in Missouri cited the Fourth Circuit and Eighth Circuit cases in the course of ruling that a disability plan sponsored by Saint Louis University Hospital wasn’t an ERISA-exempt church plan. According to the judge, the Eighth Circuit case “sets out the controlling law in this circuit regarding church plans,” which the judge said consists of a three-part test asking whether the plan sponsor shares common bonds and convictions with a church.

The Supreme Court agrees to hear only a small fraction of the many cases appealed to it each term. Conventional wisdom suggests that disagreement among appellate courts increases the likelihood of high court review, whereas a lack of disagreement makes Supreme Court review more of a long shot.

Dignity, Advocate and Saint Peter’s are all represented by Lisa S. Blatt and Elisabeth S. Theodore of Arnold & Porter LLP in Washington. The employees of all three hospitals 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.

To contact the reporter on this story: Jacklyn Wille in Washington at

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

For More Information

Text of the response to Dignity’s petition is at

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