Many faith-based health systems may soon be pouring millions into underfunded employee pension plans as federal appeals courts continue to side against them in cases over whether those plans are subject to federal protections.
Experts say the issue, which involves major health systems including Dignity Health, Presence Health and Catholic Health Initiatives, could end up in the U.S. Supreme Court.
On Thursday, the U.S. Court of Appeals for the 7th Circuit ruled that Advocate Health Care's pension plan is not a church plan simply because the health system is religiously affiliated. That means the plan is subject to the federal Employee Retirement Income Security Act (ERISA), which protects employees by requiring that pension plans be insured and sufficiently funded.
Thursday's ruling was the second out of a federal appeals court to side against a religious health system making such a claim. In December, the 3rd U.S. Circuit Court of Appeals ruled against St. Peter's Healthcare System in New Jersey.
There are now about a dozen such cases involving health systems across the country, and more are likely on the way, said Karen Handorf, a partner at Cohen Milstein Seller & Toll, which has brought many of the cases along with law firm Keller Rohrback.
“What we have discovered is many very large healthcare systems have claimed that their pension plans are exempt from ERISA's requirements because they're associated with the church in some way,” Handorf said.
Advocate noted in court documents that the whole point of exempting church plans from ERISA is to avoid government entanglement with religion. Allowing the government to pick and choose what is officially part of the church or not violates that separation, Advocate argued.
District courts have so far been divided on the issue. But the rulings in the 3rd and 7th circuits – which include Pennsylvania, New Jersey, Delaware, Illinois Indiana and Wisconsin – will now apply in all similar cases in those areas.
Amy Blaisdell, an attorney for Advocate in the case, criticized the 7th Circuit's decision as creating “uncertainty for church ministries across the country.”
“Church ministries now have divergent and conflicting opinions about whether their plans are exempt from ERISA," said Blaisdell, who is with Greensfelder, Hemker & Gale. She said the new opinions contradict past circuit and district court decisions as well as government agency interpretation.
The 4th Circuit, for example, said in a 2000 ruling that a plan established by a corporation associated with a church can still qualify as a church plan.
Blaisdell said she couldn't comment Thursday whether Advocate will appeal the matter to the U.S. Supreme Court.
But Stuart Gerson, a member at Epstein Becker Green who works on healthcare cases but is not involved in the litigation, said the issue could eventually “become Supreme Court-worthy."
“There are a lot of these cases that are coming up all over the country and they're not reaching the same result,” said Gerson who is a former Acting U.S. Attorney General. “That level of conflict is going to have to be fixed at some point.”
Brian Netter, a partner at Mayer Brown who is also not involved in the litigation, believes it's “very likely” the Supreme Court will end up weighing in on the issue. Netter typically represents plan sponsors and fiduciaries and works on ERISA issues.
“It's certainly possible that rulings such as this one could have real implications for healthcare systems,” Netter said. “The rulings of 3rd and 7th Circuits, I think, run contrary to what the industry's expectations have been."
More of those health systems' money will now be tied up in their pension plans, Netter said. Other cases are still pending, including one involving Dignity in the 9th Circuit and another involving Catholic Health Initiatives in the 10th Circuit.
Cases involving St. Anthony Medical Center in Illinois and Presence Health in Illinois were held in district court pending the outcome of the Advocate case.
A case involving Ascension Health settled after a district court judge sided with the health system, finding that “a plan need not be established by a church in order to qualify as a church plan.” A district court judge also recently partially granted a motion to dismiss a case filed against Trinity Health, saying an organization “controlled by or associated with a church or a convention of churches” is permitted to establish a church plan.
