First Church Plan Case Settles – Overall v. Ascension

On Friday, May 8, 2015, the parties in Overall v. Ascension Health filed a motion seeking approval from the district court to settle the claims brought by the plaintiffs. Of the at least ten “church plan cases” that have been filed challenging the scope of the church plan exemption from ERISA, this case is the first to settle.

Previously, the defendant catholic hospital, Ascension Health, that sponsored the defined benefit plan at issue won in the district court in getting the plaintiffs’ claims dismissed. (there are actually over a dozen plans at issue in the case sponsored by the defendant, but for simplicity’s sake, we will refer to them all as a single plan) The plaintiffs, in short, had claimed that Ascension Health was not itself a church nor associated closely enough with the Roman Catholic Church, to be eligible to sponsor a plan exempt from ERISA. The plaintiffs naturally alleged that the plan’s fiduciaries had failed to meet ERISA’s stringent requirements including allowing the plan to be underfunded by ERISA’s standards by $440 million. After the defendant’s victory in the district court, the plaintiffs appealed to the 6th Circuit and was briefed and waiting for oral arguments to be scheduled and heard. According to the settlement filings, the parties worked with a 6th Circuit mediator over many months and many sessions to settle the claims.

The Settlement

Here is a summary of the terms of the proposed settlement:

  1. The plan will continue to be considered eligible for the church plan exemption and thus exempt from ERISA.
  2. The plaintiffs, in summary, release any and all claims that were or could have been brought with a few exceptions including:
    • “Should the Roman Catholic Church ever disassociate itself from a Plan’s sponsor, as that term is defined in the respective Plan documents, any claim arising under ERISA with respect to
      any event occurring after such action by the Roman Catholic Church”; and
    • “Any claim arising under ERISA with respect to any event occurring after the Internal Revenue Service issues a written ruling that a Plan does not qualify as a Church Plan; the United States Supreme Court holds that Church Plans must be established by a church or a convention or association of churches; or an amendment to ERISA is enacted and becomes effective as a law of the United States specifying that a Church Plan must be established by a church or a convention or association of churches.”
  3. Ascension Health has agreed to contribute $8 million to the plan to be allocated at their discretion.
  4. The plaintiffs’ attorneys will receive up to an additional $2 million in fees and costs determined at the discretion of the district court. This money will not come out of the $8 million above.
  5. Ascension has guaranteed that the plans will pay participants the level of benefits promised through at least June 30, 2022.
  6. Ascension will not terminate the plan unless there is sufficient assets to meet the life annuity and lump sum distribution amounts (as those terms are defined by the relevant Plan), elected by participants in a termination, including any administrative costs.
  7. If the plan is amended, the actuarial value of a participant’s accrued benefit will be no less than it was the day immediately
    prior to the effective date of the amendment.
  8. If there are any mergers, participants will be entitled to the same (or greater) benefits postmerger as they enjoyed before the merger.
  9. The plan documents shall: (a) name a fiduciary; (b) provide a
    procedure for establishing and carrying out the current funding policy and method; (c) describe a procedure for allocation of administration responsibilities; (d) provide a procedure for plan amendments and identifying the persons with authority to make such amendments; (e) specify the basis on which payments are made to and from the Plans; and (f) provide a joint and survivor annuity as currently defined in the plan.
  10. The plan’s summary plan descriptions shall be distributed within four months of the time that the Order approving the settlement becomes Final and nonreviewable. The summary plan descriptions shall: (a) exclude any mention of ERISA or information about ERISA rights; (b) include information about the plan’s Church Plan status, including that the Plans’ benefits are not insured by the Pension Benefit Guaranty Corporation;
    (c) make it clear that the Plans are Church Plans; (d) be in the same form and manner as they are now written; (e) not comply with ERISA § 102; (f) be distributed electronically; however, if a participant sends a written request for an summary plan description, once during any calendar year a summary plan description will be provided in hard copy format at the expense of the participant.
  11. The plan’s annual summaries, pension benefit statements, and/or current benefit values (the content of said communications to be determined solely by Ascension) will be distributed electronically in the format determined by Ascension, or on request, and at the expense of the participant, once during any calendar year paper copies of such documents will be provided.
    • Annual summaries shall include: (a) plan names and EIN; (b) plan years covered by the summary; (c) summary of funding arrangements; (d) summary of Plan’s expenses; (e) information as to the number of participants at year end; (f) summary of the value of net assets at beginning and end of each year; (g) a statement of the Plan’s assets and liabilities; (h) summary information as to the increase and/or decrease in net plan assets annually; (i) summary information as to Plan’s total income; and (j) a statement of assets and liabilities consistent with the Plans’ methodologies, not later than the next October 1 following the end of each plan year.
    • Ascension shall provide pension benefit statements at least every three years, the content, distribution and format to be determined solely by Ascension.
    • Ascension will respond to requests from participants for current benefit values information, as determined solely by Ascension, within thirty (30) days after receiving a written request from a participant. However, Ascension may unilaterally extend its deadlines to respond by an additional thirty (30) days, by providing written notice to the participant.
  12. The plan’s claim review procedures, which shall be included as part of Summary Plan Descriptions, shall state: (a) the identity of the person or entity to whom a claim should be addressed; (b) the time period for filing a claim; (c) the information that must be provided in support of the claim; (d) if a claim is denied, in whole or in part, the person to whom an appeal should be sent; (e) the time period for filing a claim appeal; (f) the information the claimant must provide in support of an appeal; and (g) any statute of limitation period for filing a benefits related claim.

Our Thoughts

Boiled down, this settlement appears to be a significant victory for Ascension Health. The plaintiffs have agreed that they will no longer claim that the plan is subject to ERISA unless there is a major change in the law from either the Supreme Court, Congress, or the IRS. In exchange, Ascension health has agreed to contribute $8 million to the plan, although we have no idea how much, if anything, they were already planning on contributing this year or how that amount compares to previous years.

The settlement filings stress that the plan participants will receive “ERISA like” protections as described above, e.g. guaranteed benefits through 2022 and hefty disclosures. However, without fully analyzing the plan’s financial statements, the plan may already have had enough finding through at least 2022, so it is not clear from the settlement filings how much of a benefit this actually provides.

Notably missing from the settlement is, what we believe was the point of the lawsuits in the first place, any funding standard that closely resembles that found in ERISA. The true underlying issue in these cases is that when a defined benefit plan is not subject to ERISA, there is not an alternate state law scheme that springs up. Instead, there is often nothing at all, as most states have not enacted any pension funding standards for non-government entities (and often not even for government entities, as can be seen in many many news stories across the country of under-funded government pensions).

So how does this settlement affect the other 10 or so cases that are currently pending, including three others that are already at the circuit court level (3rd, 7th, and 9th Circuits)? Not much. All this means is that if in the end the courts (rather than Congress or the IRS) will make the final decision on what exactly is the scope of the church plan exemption, it will not come from the 6th Circuit. However, any change in the law from the Supreme Court, Congress, or the IRS will have an effect on plans claiming the church plan exemption in the 6th Circuit, including the plan at issue in this case because the settlement included such a carve out, as described above.

It also remains to be seen whether this settlement will cause any other settlements before we hear from the 3rd, 7th, or 9th Circuits. If we do, we will make sure to cover them here on the blog.

 

 

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