Hospitals' Pension Win at High Court Might be Short-Lived

U.S. Supreme Court building. March 23, 2016. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL.

Three religious-affiliated, nonprofit hospital systems won reprieves from multimillion-dollar class actions Monday in the U.S. Supreme Court. But that relief may not be long-lasting.

The unanimous court reversed three federal appellate court rulings that said the hospital systems were not exempt “church plans” under the federal Employee Retirement Income Security Act, or ERISA. The justices, led by Justice Elena Kagan, said a pension plan does not have to be established by a church to be exempt from ERISA as a “church plan.” However, the court added, it does have to be maintained by an entity that has as its principal purpose the administration or funding of a pension plan.

Here are some takeaways from plaintiffs’ counsel, employment benefits attorneys, and others on the implications of the high court’s decision.

There are more than 100 lawsuits filed around the country challenging the “church plan” exemption held by these hospital systems. What’s the immediate impact of the Supreme Court decision on those lawsuits?

“It does throw a very large monkey wrench into those lawsuits,” Howard Shapiro, a partner in Proskauer Rose’s employee benefits and executive compensation group, said. “They’re going to go forward in some fashion but I think they will be truncated and we will start to see more motion-to-dismiss victories for defendants.”

Theresa Gee, a Miller & Chevalier employee benefits lawyer, predicted: “The dispute is far from over. The remaining issues entail individualized questions with respect to the hospitals and the plans’ internal benefit committees.”

Some of those questions, she added, include: What’s the structure of the internal plan committee and how does it operate? Who are its members? What functions does it perform? “Justice Kagan made quite clear the interpretation of these terms ‘are not before us and nothing we say in this opinion expresses a view of how they should be resolved.’”

Lynn Sarko of Keller Rohrback, co-counsel for the employee challengers in the high court—along with Karen Handorf of Cohen Milstein Sellers & Toll—said the decision “foreclosed one legal argument but we will continue advancing others that shed light on the excessively broad interpretation the hospitals seek.”

Did the Supreme Court leave open any doors for future litigation against these health care system pension plans?

Yes, according to Michael Graham, chairman of Michael Best & Friedrich’s ERISA litigation practice group in Chicago. He predicted “the next wave of litigation in this area may shift to the question of whether an entity qualifies as a principal-purpose organization.” Graham said: “That question may breed a new wave of litigation to further complicate this already complicated area of ERISA.”

Karen Ferguson, director of the Pension Rights Center, said that despite the first appearance of what she called a “devastating” decision for current and former employees of religiously affiliated hospitals and other entities, there is at least one other avenue to explore.

“Still to be decided is whether government agencies were correct when they ruled that a plan’s internal employee benefit committee is the organization contemplated by Congress,” she said. “The plan participants will argue that the law was only intended to apply to church pension boards, which are financial organizations that maintain plans for certain denominations.”

Shapiro of Proskauer Rose said: “You have to establish now on the defense side that the principal purpose entity—the entity, committee or organization within the plan sponsor—is controlled by and or associated with a church or convention of churches. We were able to show exactly that in winning a motion to dismiss in Overall v. Ascension, which the justices cite favorably in their analysis.

Beyond ERISA, are there any claims that employees of these health care systems may make if they believe their pension plans are underfunded or in trouble?

Joseph Urwitz, an employee benefits partner at McDermott Will & Emery, said one new avenue that has been overlooked involves state law claims. “We’ve all been so caught up in, ‘Gee, what’s going to happen under ERISA?’ But since these plans now aren’t covered by ERISA, that means there is no ERISA pre-emption and state law claims could apply. I would not be surprised at all if plaintiffs’ firms try to make some state law complaints. I can’t speculate on results but plaintiffs would be fairly sympathetic to a lot of state courts.”

Urwitz makes a “valid point,” Shapiro said. “Most of the companies I have defended all take the position that state law governs, not ERISA. The people on the plaintiffs’ side have tried to paint a picture of a vacuum of legislation. These plans have always been subject to litigation under state law.”

Are there any cautionary notes for these health care systems going forward?

McDermott’s Urwitz said health systems should be mindful of their church connections. “The first footnote in the opinion is sort of interesting. Justice Kagan said basically, ‘We’ve kind of assumed these hospitals are sort of closely enough linked with their churches.’ They still have to kind of watch their connections. This basically says you don’t need to show a church established these plans, but it’s not a complete ‘do whatever you want.’”

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