Church Plan Challengers Score Second Appellate Victory

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By Jacklyn Wille

March 17 — The nationwide litigation effort accusing large hospitals of using ERISA's church plan exemption to underfund their pension plans by millions of dollars scored its second big victory when the U.S. Court of Appeals for the Seventh Circuit ruled against Illinois-based Advocate Health Care Network.

The lawsuit is one of more than a dozen recent lawsuits claiming that religiously affiliated health-care corporations such as Advocate have improperly treated their pension plans as church plans to avoid complying with the funding, notice and disclosure requirements of the Employee Retirement Income Security Act.

Although the district courts have issued mixed rulings in these lawsuits, the hospitals have struck out with both of the appellate courts to have considered these questions, with the Seventh Circuit following the Third Circuit's 2015 decision against Saint Peter's Healthcare System .

A decision rejecting a hospital's reliance on ERISA's church plan exemption could end up being very expensive for a hospital. Some of these lawsuits allege that the hospitals in question would need to contribute tens of millions of dollars to their pension plans to satisfy ERISA's funding requirements.

The next appellate decision in this line of cases is likely to come from the Ninth Circuit, which heard arguments in a similar case in February (Rollins v. Dignity Health, 9th Cir., No. 15-15351, argued 2/8/16).

Attorneys React

Karen L. Handorf, a partner with Cohen Milstein Sellers & Toll and counsel for the participants in several of these suits, told Bloomberg BNA on March 17 that she was optimistic both about the Rollins case in the Ninth Circuit and the two lawsuits pending in the U.S. District Court for the Northern District of Illinois, which will be controlled by the Seventh Circuit's decision.

“Obviously, we’re very pleased with the decision,” Handorf said. “I think the court once again went through the statutory language of the exemption and came to what we think is the inevitable conclusion—that only a church can establish a church plan. That’s consistent with the language of the statute and the legislative history.”

Handorf added the decision was “another victory for people who haven’t been given the rights that ERISA contemplated that they would have.”

Amy Blaisdell, a lawyer with Greensfelder, Hemker & Gale PC and counsel for Advocate, criticized the decision for creating uncertainty.

“This decision creates uncertainty for church ministries across the country,” Blaisdell told Bloomberg BNA in a March 17 e-mail. “Church ministries now have divergent and conflicting opinions about whether their plans are exempt from ERISA—those expressed by the Third and Seventh Circuits in contrast to those expressed by the Fourth, Eighth, agency and district court opinions over the last 30 years.”

Blaisdell also took issue with the court's failure to defer to agency opinions on church plans.

“It is disappointing how little deference the Third and Seventh Circuits have given to the longstanding construction of the Internal Revenue Service and the Department of Labor and to the numerous district and circuit court opinions on church plans prior to 2013,” she said.

Karen Ferguson, director of the Pension Rights Center, called the Seventh Circuit's ruling a “wonderful decision.”

“The unanimous Seventh Circuit decision is carefully reasoned and right on target,” Ferguson told Bloomberg BNA in a March 17 e-mail. “The Court holds that to be exempt from ERISA a pension plan must be established by a church. This means that Advocate Health Care Network employees cannot be denied all-important ERISA protections, including adequate funding of their plan and federal pension insurance.”

The Pension Rights Center filed an amicus brief supporting the Advocate employees.

Coordinated Litigation Effort

This string of lawsuits began in 2013 and targets religiously affiliated health-care companies such as Catholic Health East, Trinity Health Corp., Dignity Health and Ascension Health. Plaintiffs' firms Keller Rohrback LLP and Cohen Milstein Sellers & Toll have filed the bulk of the lawsuits, which span multiple judicial circuits.

The district judges considering these disputes have been evenly split, issuing decisions in favor of Ascension, Catholic Health and Trinity Health, but ruling against Saint Peter's, Advocate and Dignity Health.

A few of the lawsuits have settled, most notably the one against Ascension Health, for $8 million

The tide turned in favor of the challengers in December 2015, when the Third Circuit held that Saint Peter's couldn't treat its pension plan as an ERISA-exempt church plan because the federal benefits law provides that only a church can establish a church plan. If the Saint Peter's workers who filed that lawsuit have their way, the decision could cost the company more than $30 million in pension contributions.

Parsing the Statute

Like the other courts to have considered this issue, the Seventh Circuit devoted much of its opinion to parsing the exact language of ERISA's church plan exemption.

According to the Seventh Circuit, the statute unambiguously requires that a church plan be established by a church, regardless of whether such a plan could be “maintained” by a non-church entity, as Advocate argued.

In addition to finding that Advocate's position was foreclosed by clear statutory language, the Seventh Circuit noted the policy considerations that counseled against a ruling in favor of the health-care company. In particular, the court said the briefing was “replete with examples” of hospitals that treated their pension plans as church plans, allowed them to become underfunded, and then ran into financial troubles that left their employees out of luck.

Finally, the Seventh Circuit declined to defer to the Internal Revenue Service's stated position on the matter because it was expressed in private letter rulings and not through a formal rulemaking process.

Judge Ilana Diamond Rovner wrote the court's March 17 opinion, which was joined by Judge William J. Bauer.

Judge Michael S. Kanne wrote a short concurring opinion making clear that this wasn't a case in which a church-affiliated organization was being forced by law to violate its sincerely held beliefs.

Keller Rohrback LLP, Cohen Milstein Sellers & Toll PLLC and Stephan Zouras LLP represented the workers. Greensfelder Hemker & Gale PC represented Advocate.

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

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