Church Plan Challengers Win Third Appellate Victory

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By Jacklyn Wille

July 26 — The nationwide litigation effort accusing large hospitals of using ERISA's church plan exemption to underfund their pension plans by hundreds of millions of dollars scored its third big victory ( Rollins v. Dignity Health , 2016 BL 239357, 9th Cir., No. 15-15351, 7/26/16 ).

In rejecting Dignity Health's attempt to treat its pension plan as a church plan exempt from federal funding requirements, the U.S. Court of Appeals for the Ninth Circuit on July 26 joined two other circuit courts—the Third and the Seventh—in holding that a church plan must be established by a church.

With this decision, the attorneys leading this litigation effort—which has spawned three dozen lawsuits against large hospitals throughout the country—are now 3-0 in the federal appellate courts.

While these decisions have turned on hypertechnical parsing of statutory language, the ramifications can be enormous. 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 complied with the funding requirements of the Employee Retirement Income Security Act.

The hospitals continue to dispute the claims made in these lawsuits, arguing that 30 years of guidance from the Internal Revenue Service bolsters their position. The Ninth Circuit in particular found this argument unpersuasive, saying that the IRS memo cited by the hospitals is based on an “obvious misreading of the statutory text.”

Earlier this month, Saint Peter's Healthcare System and Advocate Health Care Network asked the U.S. Supreme Court to wade into the dispute and bless their pension plans as ERISA-exempt church plans.

Reaction

Karen Ferguson, director of the Pension Rights Center—which filed a brief in support of the workers suing Dignity Health—praised the Ninth Circuit's decision.

“The Court's opinion is excellent—straightforward and right on target,” Ferguson told Bloomberg BNA in a July 26 e-mail. “It says that ERISA only exempts pension plans that have been established by churches, and finds that this plain-reading of the law is supported by unambiguous legislative history.”

Robert W. Rachal, an ERISA attorney in Proskauer Rose LLP's New Orleans office who is defending other hospitals from church plan lawsuits, identified several problems he saw in the Ninth Circuit's decision.

In particular, Rachal faulted the court for giving no deference to the IRS, despite finding a point of ambiguity in the statutory language.

“Typically, agencies get deference when there is more than one possible way to read a statute, particularly when it is a long-standing, consistent read of that statute in an area—pensions—in which they have particular expertise,” Rachal told Bloomberg BNA in a July 26 e-mail.

Rachal also disagreed with how the Ninth Circuit parsed the statute, saying that the court failed to address certain changes made to the statutory language.

Judge William A. Fletcher wrote the Ninth Circuit's decision, which was joined by Judge A. Wallace Tashima and Senior District Judge Robert W. Gettleman of the U.S. District Court for the Northern District of Illinois, sitting by designation.

Arnold & Porter LLP, Nixon Peabody LLP and Manatt Phelps & Phillips LLP represented Dignity Health, along with Harvard Law School's David L. Shapiro. Keller Rohrback LLP and Cohen Milstein Sellers & Toll PLLC represented the Dignity Health employees.

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

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

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