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May 23 —One of the 30 recent lawsuits accusing religiously affiliated hospitals of mismanaging their pension plans has settled for $107 million—an amount 13 times larger than the only other public settlement in this series of cases.
In 2015, a proposed class of workers accused Connecticut-based St. Francis Hospital of improperly treating its pension plan as a “church plan” exempt from federal law, resulting in a pension underfunding of $139 million. According to recently filed court documents, St. Francis has agreed to settle this lawsuit by contributing $107 million to its pension plan over a 10-year period, which corresponds to about $60,000 per plan participant.
This settlement amount dwarfs the $8 million settlement reached by Ascension Health and its workers in a similar case last year (90 PBD, 5/11/15). According to the original complaint against Ascension, that hospital's pension plans were underfunded by more than $444.5 million, a funding shortfall three times as big as the one claimed by St. Francis workers.
Of the 30 class actions filed in the past three years challenging the church plan designations of hospital pension plans, these are the first two to have reached public settlements. The parties in two pending lawsuits against hospitals affiliated with Trinity Health Corp.—the parent company of St. Francis—are currently seeking consolidation in order to proceed with the settlement process.
The cases all ask the same question: Can a religiously affiliated hospital treat its pension plan as a “church plan” exempt from the Employee Retirement Income Security Act, or must the hospital comply with the statute's funding, vesting and disclosure requirements?
District courts initially issued mixed rulings in these cases, but the workers were victorious in the two cases to have made their way to the appellate court level. Since the U.S. Court of Appeals for the Seventh Circuit held that Advocate Health Care Network's pension plan wasn't an ERISA-exempt church plan in March, at least 17 new lawsuits have been filed against religiously affiliated hospitals.
Under the proposed settlement agreement, St. Francis will make a one-time $17 million contribution to the pension plan, followed by a $10 million contribution in each of the following nine years. If St. Francis can't make these payments, the settlement obligates the hospital's parent company, Trinity Health, to take over.
The settlement also requires St. Francis to pay accrued benefits for 15 years, assuming the plan remains in existence and that no significant change in the law governing church plans occurs. According to court documents, this obligation is “critical,” because St. Francis currently has “no legal obligation” with respect to the plan.
However, the settlement doesn't include any specific requirement that the plan be treated as though it were governed by ERISA. By contrast, the Ascension settlement in 2015 specifically provided for certain “ERISA-like protections” involving participant disclosures, claims procedures and other topics.
Fiona Phelan, media relations manager for St. Francis, told Bloomberg BNA that the hospital has always been committed to meeting its pension obligations.
“Saint Francis Hospital and Medical Center remains committed to ensuring our retirees and their beneficiaries receive their benefits under all of our retirement plans,” Phelan said in a May 23 statement.
Phelan added that the St. Francis plan remains a “church plan” even after the litigation and settlement.
“The law suit was resolved by committing to fund the plan in a manner consistent with what Saint Francis has done in the past and intends to do in the future,” Phelan said.
The settlement also allows the workers' attorneys, Izard Nobel LLP and McCarthy Coombes & Costello LLP, to seek a fee award of up to $800,000—less than 1 percent of the total settlement award.
St. Francis was represented by Proskauer Rose LLP and Verrill Dana LLP.
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Text of the settlement motion is at http://www.bloomberglaw.com/public/document/KempDeLisser_v_Saint_Francis_Hospital_and_Medical_Center_et_al_Do/1.
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