Feds Break Silence, Back Hospitals in Church Pension Battle

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

Five federal agencies have asked the U.S. Supreme Court to rule that religiously affiliated hospitals can run pension plans exempt from federal law, a move that’s been challenged in dozens of class actions by hospital employees around the country.

The Jan. 24 amicus brief is the first time the agencies involved in regulating pension plans have taken a public position on these cases, which directly attack the way the agencies have interpreted the Employee Retirement Income Security Act’s “church plan” exemption.

The brief also makes for some strange bedfellows: In signing onto the brief, the Department of Labor is asking a court to rule in favor of employers and against workers seeking benefits, an unlikely position for the agency charged with ensuring work-related benefits and rights.

This series of lawsuits claims that more than 300,000 hospital workers nationwide face a pension shortfall of about $4 billion because hospitals have wrongly treated their pension plans as church plans exempt from ERISA’s funding requirements.

The lawsuits also pit the DOL, Internal Revenue Service and Pension Benefit Guaranty Corporation—which have approved of these church plan designations for decades—against the federal appellate courts, which recently issued threeseparatedecisions rejecting the hospitals’ claim of church plan status.

In addition to the DOL, IRS and PBGC, the brief was also submitted by the departments of Justice and Treasury.

Breaking Silence

The lawsuits call into question hundreds of IRS private letter rulings authorizing hospitals and other entities to run ERISA-exempt church plans. In many cases, the letter rulings allowed hospitals to receive refunds of insurance premiums paid to the PBGC, the agency that provides government-backed pension insurance.

Between 1991 and 2013, the PBGC refunded nearly $50 million in premium payments to employers that claimed church plan status for their pension plans, according to documents obtained by Bloomberg BNA under the Freedom of Information Act.

Until now, the agencies have stayed largely silent about this litigation push. Bloomberg BNA asked the IRS several times for an interview or a comment on its policy on hospital church pension plans, but the agency declined, pointing to general guidance and publicly available documents.

By finally speaking up in defense of their well-established position, the agencies are no doubt quelling concerns of the many employers that rely on the church plan exemption.

“The United States government strongly endorsed its long-standing interpretation of the ERISA church plan exemption,” Mark E. Chopko, a partner with Stradley Ronon in Washington and chair of the firm’s nonprofit and religious organizations group, told Bloomberg BNA Jan. 27 in an e-mail. “That is a relief to religious agencies across the country that have relied on consistent interpretation.”

‘Same Page.’

Moreover, this coordinated response from the DOL, IRS and PBGC is a good sign, particularly if the Supreme Court ultimately rejects the agencies’ long-standing statutory interpretation, according to one ERISA attorney.

“It’s great to see that all three of them are on the same page,” Mary K. Samsa, a partner in McDermott Will & Emery’s Chicago office, told Bloomberg BNA.

If the Supreme Court rules that these pension plans are subject to ERISA after being run as ERISA-exempt for years, the agencies charged with pension oversight will need to be on the same page in formulating a response, Samsa said. This coordinated amicus brief suggests that those conversations already may be underway, Samsa said.

Strange Bedfellows

The brief is noteworthy for being a rare example of the DOL supporting an employer in a dispute over workers’ pension benefits. The vast majority of amicus briefs filed by the DOL in ERISA cases are submitted in support of workers seeking benefits or attempting to enforce their statutory rights against employers and plan fiduciaries.

Even so, it would be wrong to read this move by the DOL as “anti-worker,” said Robert Rachal, a defense-side ERISA attorney and partner with Holifield Janich Rachal & Associates in New Orleans.

“The plaintiff’s side is not always pro-worker in the long haul,” Rachal told Bloomberg BNA. “If you step back, you can win a battle and lose a war.”

According to Rachal, a decision upending the long-standing interpretation of ERISA—particularly one with significant financial consequences for employers—could deter employers from offering pension plans in the first place.

“It’s not anti-worker to support predictability and reliability in the law,” Rachal said.

Statutory Interpretation

The 34-page brief is full of legislative history and statutory interpretation and includes little in the way of pure policy arguments.

According to the brief, the agencies’ interpretation of ERISA’s church plan exemption is the “natural reading of the statutory text,” bolstered by Congress’ stated goal of more fully accommodating the way certain religious denominations are organized.

The brief also asks the Supreme Court to give deference to the agencies’ position, something the federal appellate courts have largely refused to do. The agencies claim that their interpretation should carry “particular weight,” because Congress has “repeatedly revisited” the treatment of church plans without disturbing that agency interpretation, including in a 2004 statute specifically addressing the pension plan of the Young Men’s Christian Association (YMCA).

Finally, the brief urges the Supreme Court to consider the “substantial reliance” that employers have placed on the agency’s interpretation, which has been “consistently and frequently reaffirmed” over time.

Not everyone was impressed with these arguments. Karen Ferguson of the Pension Rights Center in Washington criticized the brief for failing to defend the “sole rationale” behind the hundreds of private letter rulings issued to pension plans.

“All of the rulings explicitly state that to qualify as an exempt ‘church plan' a plan must be administered by a retirement committee, and that it is only this internal administrative committee that satisfies the statutory requirement that the plan be maintained by ‘an organization, whether a civil law corporation or otherwise' that administers the plan,” Ferguson said in an e-mail to Bloomberg BNA.

Moreover, the brief's discussion of legislative history shows that “the only purpose of this legislative language was to ensure that ‘church pension boards' established by congregational and other non-hierarchical churches could continue to maintain plans,” Ferguson said.

The cases are Advocate Health Care Network v. Stapleton , U.S., No. 16-74, brief filed 1/24/17 ; Saint Peter’s Healthcare Sys. v. Kaplan, U.S., No. 16-86, amicus brief filed 1/24/17 ; and Dignity Health v. Rollins, U.S., No. 16-258, amicus brief filed 1/24/17 .

The Supreme Court hasn’t announced when it will hear arguments in these cases.

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

For More Information

Text of the brief is at http://src.bna.com/lKZ.

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