New Church Plan Lawsuit Alleges Underfunding of $204M

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By Jacklyn Wille

March 21 — Cincinnati-based St. Elizabeth Medical Center Inc. is the latest hospital to be targeted by a lawsuit challenging its decision to treat its pension plan as an ERISA-exempt church plan.

The proposed class action asks a question that more than a dozen recent lawsuits have asked: Can a religiously affiliated hospital such as St. Elizabeth treat its pension plan as a “church plan” exempt from the Employee Retirement Income Security Act, or does the hospital have to comply with the statute's funding, vesting and disclosure requirements?

The question can end up being a costly one for hospitals. According to the complaint against St. Elizabeth, the hospital's pension plan is underfunded by more than $204 million. If the lawsuit is successful in, the hospital could be forced to make up this funding deficiency or implement other worker protections required by ERISA.

Successful Challenges

The instant lawsuit against St. Elizabeth was filed March 17, the same day the U.S. Court of Appeals for the Seventh Circuit upheld a similar challenge to the pension plan sponsored by Illinois-based Advocate Health Care Network (Stapleton v. Advocate Health Care Network, 2016 BL 81894 (7th Cir. 2016) ).

More than a dozen lawsuits challenging hospital pension plans have been filed in judicial districts throughout the country. District judges have been evenly split on whether these hospitals can use ERISA's church plan exemption. They've issued decisions issued in favor of Ascension Health, Catholic Health East and Trinity Health Corp. and against Saint Peter's Healthcare System, Advocate and Dignity Health.

So far, two appellate courts have weighed in on this line of cases, with both holding that the hospitals couldn't rely on ERISA's church plan exemption. The Seventh Circuit's decision against Advocate came three months after the Third Circuit issued a similar ruling against Saint Peter's (Kaplan v. Saint Peter's Healthcare Sys., 810 F.3d 175 (3d Cir. 2015) ).

The next appellate decision in this line of cases is likely to come from the Ninth Circuit, which heard arguments in a similar case in February (Rollins v. Dignity Health, 9th Cir., No. 15-15351, argued 2/8/16).

New Allegations

In addition to various ERISA violations, the complaint accuses St. Elizabeth of obtaining an unfair advantage over its competitors.

“As a result of its bogus claim that it is a church, the Company avoids its statutory retirement plan funding obligations to employees and thereby obtains a competitive advantage over other healthcare providers who meet their financial obligations to their employees,” the complaint alleged.

St. Elizabeth is “one of the oldest and largest medical providers in the Greater Cincinnati region,” with seven facilities operating in Northern Kentucky, the nurses said in their complaint. They seek to represent a class of all participants and beneficiaries in the St. Elizabeth pension plan, a class they claim includes “thousands” of people.

The nurses' lawsuit was filed in the U.S. District Court for the Eastern District of Kentucky by Pennsylvania-based Kessler Topaz Meltzer & Check LLP, Connecticut-based Izard Nobel LLP and Kentucky-based Mehr Fairbanks & Peterson Trial Lawyers PLLC. Most of the lawsuits in this series were filed by plaintiffs' firms Cohen Milstein Sellers & Toll PLLC and Keller Rohrback LLP.

A spokesman for St. Elizabeth told Bloomberg BNA on March 21, “We can't comment on any active litigation matter. However, as we stated previously, our senior management team and board of trustees have made the commitment to fund the pension at the same levels required of ERISA plans, even though we are not required to follow ERISA funding requirements as a non-ERISA church plan.”

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