Hospital Notches Victory in Church Pension Plan Battle

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By Jacklyn Wille

Illinois hospital system OSF Healthcare doesn’t have to face state law claims over the pension plans it has designated as “church plans” exempt from federal funding and insurance requirements.

A federal judge Dec. 5 dismissed the breach-of-contract and other claims as incompatible with the Employee Retirement Income Security Act. If the plans are ultimately found to be subject to ERISA, the state law claims would be pre-empted, the judge said. Conversely, if ERISA doesn’t apply to the pension plans, the state law claims wouldn’t belong in federal court, the judge said.

The decision is one of the first rulings to consider how hospital workers can challenge their underfunded pension plans after the U.S. Supreme Court ruled in June that ERISA allows hospitals like OSF to treat their pension plans as church plans exempt from the statute’s funding, disclosure, and insurance requirements. The OSF workers added state law claims to their lawsuit after the Supreme Court’s decision, and this ruling is a blow to both the OSF workers and the thousands of hospital employees currently embroiled in similar litigation over underfunded pension plans.

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 ($352M), Connecticut-based Saint Francis Hospital ($107M), Trinity Health Corp. ($75M), Ascension Health ($8M), and Alabama-based Baptist Health System Inc. ($11M).

The Supreme Court’s ruling cast serious doubt on the workers’ ability to bring ERISA-based claims challenging their pension plans’ funding status. The Dec. 5 ruling by a federal judge in Illinois suggests they also may have trouble using state law to make their cases.

In this segment of the litigation, OSF sought to dismiss only the state law claims added in the wake of the Supreme Court’s decision. In granting the request, the judge said the state law claims were “poisonous” to the jurisdiction of federal courts.

“Plaintiffs can either proceed on their state law claims or they can be in federal court, but not both,” the judge wrote. “There is no point in continuing to litigate these claims in this Court because they are going to be dismissed sooner or later.”

Attorneys for both sides declined to comment on the decision.

Judge Staci M. Yandle of the U.S. District Court for the Southern District of Illinois wrote the decision.

The OSF workers are represented by Armstrong Law Firm LLC, Kessler Topaz Meltzer & Check LLP, Keller Rohrback LLP, Cohen Milstein Sellers & Toll PLLC, and Izard Kindall & Raabe LLP.

OSF was represented by Morgan Lewis & Bockius LLP and Williams Venker & Sanders LLC.

The case is Smith v. OSF Healthcare Sys. , 2017 BL 434790, S.D. Ill., No. 3:16-cv-00467, order granting partial motion to dismiss 12/5/17 .

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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