In an era where pensions are an increasingly scarce benefit as employers phase out or terminate their pension plans in favor of 401(k) or other plans, Dignity says eliminating or narrowing the church-plan exemption could have a major impact on those benefits. “The consequences (of eliminating the ERISA exemption) are likely irreversible,” Dignity Health said in its Supreme Court petition. “Some employers may be forced to eliminate their plans altogether and smaller organizations may collapse under the financial burden of retroactive liability, ERISA compliance or both.”
The Supreme Court has yet to decide if it will weigh in on the cases, but legal experts say review is likely, given the growing docket of related faith-based pension suits across the country and the court's decision to prevent Dignity from coming under ERISA's jurisdiction until it considers the petitions.
“The Supreme Court sees the landscape, sees how many cases are out there and wants to be able to provide that kind of nationwide guidance on the issue,” said Michael Drew, a partner in Jones Walker's business and commercial litigation practice group. “Lots of big metropolitan areas are already under a decision that would apply to church-affiliated entities in those jurisdictions.”
Although President-elect Donald Trump's win could make the Supreme Court more faith-friendly and anti-regulatory in the coming years, faith-based health systems won't get that relief in this pensions case. The court will decide whether to weigh in on the pension appeals in the next few weeks. If they make it on the docket, arguments will likely happen before the Supreme Court term ends in April, probably before a new justice could reach the bench.
So far, three dozen lawsuits by current and former employees have been filed against faith-based health systems in federal courts. All allege the not-for-profit healthcare organizations aren't entitled to skirt ERISA requirements. Three federal appeals courts covering California, Illinois, New Jersey and Pennsylvania have already batted down the church-plan exemptions.
The Internal Revenue Service and U.S. Labor Department have issued more than 500 rulings granting church- plan status to health systems, universities, day-care centers and other church-affiliated businesses over the past 35 years. According to Dignity, Advocate and St. Peter's, all of those letters won't be worth the paper they're written on if the Supreme Court doesn't step in and back the church-plan exemption.
To qualify for a church-plan exemption, the pension plan must be established and maintained by a church or association of churches. In 1980, Congress amended the exemption to include pension plans maintained by associated organizations, and it has provided church-plan status to hundreds of organizations based on those amendments. But the plaintiffs suing the health systems claim the exemption still requires the church itself to establish the pension plan, and they allege that criteria wasn't met.
Those arguments are hard to swallow for many health systems, according to Mark Chopko, chairman of Stradley Ronon Stevens & Young's not-for-profit and religious practice and counsel for the Catholic Health Association. While he acknowledges that the faith-based health industry has changed significantly over time, Catholic hospitals and even large health systems still maintain close ties to their church sponsors.
“The church created new governance structures to ensure that they were Catholic and part of the Catholic Church,” he said.
But establishing those links can be tricky, as churches tend to be organized in a series of ecclesiastically related entities including dioceses, parishes, hospitals and universities.
“That's just a feature of modern American life,” Chopko said. “By making these decisions as prudent administrators of the church, why does that take us out of the protection of the law? That can't be what Congress intended.”
Under ERISA, pension plans must be insured and fully funded, which protects those benefits for retirees and beneficiaries. Although Dignity, Advocate and St. Peter's all maintain that their plans are fully funded, some other faith-based health systems may not be in that same situation; some 1,900 beneficiaries of St. Anthony's Medical Center in Homewood, Ill., allege in their own pending lawsuit that as much as 40% of their pension benefits were cut after the plan was terminated in 2012.
But a St. Anthony's-esque situation couldn't happen at St. Peter's, according to the health system's attorney Jeffrey Greenbaum. The head of Sills Cummis & Gross' class-action practice group said St. Peter's pension plan isn't considered at risk and is at least 80% funded.