A federal appeals court determined on Tuesday that Dignity Health's employee pension plan must comply with federal protections for workers despite the system's faith-based background.
The Ninth Circuit rejected the San Francisco-based health system's claims that its pension system was exempt from the federal Employee Retirement Income Security Act, ruling that it didn't meet the qualifications to be considered a church plan.
According to the Ninth Circuit and a lower federal court, church plans must be established by a church and maintained by either a church or principal-purpose organization.
Dignity Health was formerly known as Catholic Healthcare West. The health system's board decided in 1992 to treat its pension plan as a church plan, but former hospital employee Starla Rollins sued Dignity Health for failing to comply with ERISA in 2013.
The federal law requires pension plans to be insured and fully funded, but Dignity Health and several other faith-based organizations say they shouldn't be subject to the statute because of their religious affiliations.
The appellate panel noted that federal statutes have acknowledged that there are distinctions between churches and other religious organizations for a long time, and there is a similar line drawn for ERISA exemptions.
Faith-based organizations have come under fire in recent months for failing to comply with ERISA, as 22 lawsuits have been filed over the issue in the last four months. The U.S. Supreme Court is considering whether to weigh in on similar cases involving Advocate Health Care in Illinois and St. Peter's Healthcare System in New Jersey.
This latest ruling may sway the justices to leave the ERISA issue alone because there is no conflict among the appellate courts, according to Karen Handorf, a partner at Cohen Milstein Seller & Toll and an attorney for Rollins.
“We think the Dignity decision correctly interprets the exemption to include only plans established by churches, which is well-supported by the legislative history,” Handorf said.