Hospital Pension Plans Seek Salvation at SCOTUS

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By Jacklyn Wille

The oral arguments at the U.S. Supreme Court over the ability of religiously affiliated hospitals to treat their pension plans as “church plans” amounted to a 60-minute catechism on statutory interpretation and legislative history ( Advocate Health Care Network v. Stapleton, U.S., No. 16-74, oral argument 3/27/17 ; Saint Peter’s Healthcare Sys. v. Kaplan, U.S., No. 16-86, oral argument 3/27/17 ; and Dignity Health v. Rollins, U.S., No. 16-258, oral argument 3/27/17 ).

Despite lurking questions of agency deference and church-state entanglement, the justices and attorneys on March 27 stuck closely to the question presented by the cases: Must a benefit plan be initially established by a church to qualify as a “church plan” exempt from the Employee Retirement Income Security Act?

The cases have roots in a four-year flurry of litigation involving more than two dozen religiously affiliated hospitals throughout the country. In all, the lawsuits claim that more than 300,000 hospital workers face a pension shortfall of about $4 billion because hospitals have wrongly designated their pension plans as church plans exempt from ERISA’s funding rules.

Reaction

“I think the oral argument confirms that the heart of this matter is the question of statutory construction,” Mark Chopko, a partner with Stradley Ronon in Washington and chair of the firm’s nonprofit and religious organizations group, told Bloomberg BNA.

“The first question out of the box was why is your version the most plausible reading of the statute,” Chopko said.

Edna S. Kersting, an employee benefits attorney and partner in Wilson Elser’s Chicago office, agreed. Kersting said the focal point of the arguments was statutory interpretation, with little specific discussion of other issues like agency deference.

Despite the strong focus on statutory text, Chopko said it was clear from the arguments that justices have some reservations about issuing a ruling that would contradict decades of agency guidance.

“The court’s obviously concerned about unraveling 35 years of consistent interpretations,” he said.

‘I’m Torn.’

Justice Sonia Sotomayor jumped in with questions, even before the first word was uttered during the argument.

“I’m torn,” Sotomayor said. “This could be read either way in my mind.”

She asked James A. Feldman, the Washington-based solo practitioner who argued on behalf of the plan participants, how to “break the tie.” Feldman pointed to legislative intent, arguing that Congress never intended for large health-care corporations to receive special exemptions for their pension plans.

Billions?

The arguments drifted at times toward the huge amounts of money at stake in the cases.

Lisa S. Blatt, the attorney with Arnold & Porter LLP who argued on behalf of the hospitals, told the justices that two of the three cases before the court raised the possibility of $66 billion in retroactive penalties being assessed against the hospitals. That’s because ERISA allows for penalties of $110 per day for each plan participant who doesn’t receive the requisite notices and disclosures.

“I am not kidding, $11 billion per year,” Blatt said. “That’s $66 billion in two cases if ERISA’s six-year statute of limitations applies.”

Arguing for the plan participants, Feldman attempted to soften this request by pointing out that such penalties are discretionary. The penalties likely would be reduced—if assessed at all—to account for the fact that the hospital defendants received letters from the Internal Revenue Service blessing their pension plans as church plans, Feldman suggested.

He added that the cases “overwhelmingly” sought the forward-looking remedy of bringing the plans into compliance with ERISA, and not backward-looking penalties that could climb into the billions.

Justice Samuel Alito appeared incensed by this line of argument. Alito asked Feldman if he would specifically disavow any request for penalties. After receiving a negative answer, Alito disputed Feldman’s characterization of the remedies as primarily forward-looking.

What About Deference?

Chief Justice John Roberts attempted to turn the arguments away from statutory interpretation and toward the question of agency deference.

For more than 30 years, the IRS issued determination letters giving hospitals permission to treat their pension plans as ERISA-exempt church plans. After three federal appeals courts directly rejected this position, the IRS and other agencies filed an amicus brief urging the Supreme Court to defer to the long-standing position expressed in these letters.

In an exchange with Blatt, Roberts appeared skeptical of the idea that the court should defer to the IRS position, telling Blatt that “the statute means what it means, and it’s nice that these agencies have interpreted it your way.”

“But I think we have to go back and interpret the statute ourselves,” Roberts said.

Justice Ruth Bader Ginsburg had some strong words for the original IRS document allegedly entitled to deference—a 1982 general counsel memorandum that formed the reasoning behind hundreds of private letter rulings issued to hospitals and other organizations. Ginsburg called the memorandum “thinly reasoned,” suggesting she wasn’t likely to afford it much deference.

Although several justices asked questions about deference, no justice raised that issue with the attorney arguing on behalf of the government, Deputy Solicitor General Malcolm L. Stewart.

Practical Considerations

Sotomayor also raised questions about the defendant hospitals and their status as large corporations. She pointed out that defendant Dignity Health is one of the country’s largest health systems, with about 60,000 employees.

“Do you believe that Congress’s vision was to let, what is essentially, a corporate entity opt out of protecting all of those employees?” she asked Blatt.

Justice Stephen Breyer, who spoke only to the attorney representing the hospital employees, pressed for information on the number of employees who would be affected by the court’s ultimate ruling.

Feldman estimated that about 1 million employees have participated in pension plans that would be affected by the court’s ruling. The number of employees who participate in pension plans that have been sued over the church plan designation is about 300,000, according to research by Bloomberg BNA.

The justices are expected to issue a ruling before the end of the court’s current term in late June.

To contact the reporter on this story: Jo-el J. Meyer in Washington at jmeyer@bna.com

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

For More Information

A transcript of the court's arguments is at http://src.bna.com/nn9.

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