Over the last 5 weeks, the law firms of Keller Rohrback, LLP and Cohen Milstein Sellers & Toll, PLLP have filed individual lawsuits against four mega non-profit hospital conglomerates alleging that they are not entitled to the Church Plan exemption under ERISA. Each defendant is alleged to have violated the minimum funding, notice, plan document, trust, and fiduciary rules of ERISA in sponsoring their defined benefit pension plans. In the simplest terms, plaintiffs are alleging that the defendants purposely ignored each and every requirement of ERISA that is meant to protect plan participants by “improperly” claiming to be exempt Church Plans. In total, the plaintiffs allege at least $2.1+ billion in underfunding, plus unspecified other damages, in the following lawsuits:
- Overall v. Ascension Health – Eastern District of Michigan (March 28, 2013)
- $444 million underfunded
- Chavies v. Catholic Health East – Eastern District of Pennsylvania (March 28, 2013)
- $438 million underfunded
- Rollins v. Dignity Health – Northern District of California (April 1, 2013)
- $1.2 billion underfunded
- Kaplan v. Saint Peter’s Healthcare System – District of New Jersey (May 7, 2013)
- $77 million underfunded
The Church Plan Exemption
The discussions of the Church Plan exemption are essentially, if not exactly, the same in all four complaints. For those that are not aware, ERISA as passed in 1974 exempted “church plans” from the major provisions of ERISA, including the minimum funding and fiduciary rules. At the time, ERISA defined a Church Plan as a plan “established and maintained for its employees by a church or by a convention or associations of churches.” The church plan exemption was amended in 1980, which is at the center of the allegations in the cases. For those interested in the exact legal argument being made by the plaintiffs in these cases, we strongly suggest you click here and read the Complaint against Ascension Health starting at paragraphs 44 through 57 and 96 through 114. It is highly technical. However, the basic argument goes like this:
- None of the plans sponsored by the collective defendants are plans “established and maintained” directly by churches as defined by 29 U.S.C. §1002(33)(A) or “pension boards” as defined by 29 U.S.C. §1002(33)(C)(i),
- Nor are the plans established or maintained by organizations that are “associated with” a church as defined by 29 U.S.C. §1002(33)(C)(ii)(II), such as a school or hospital, such that the employees of these organizations could be defined as employees of a church. To be “associated with” a church means the organization “shares common religious bonds and convictions with that church or convention or association of churches” as defined by 29 U.S.C. §1002(33)(C)(iv). The defendants that have been sued do not share these common religious bonds with the Catholic Church, and
- Informal guidance by the IRS and the Department of Labor have incorrectly interpreted the statute to allow a non-church organization to sponsor its own Church Plan as long as the organization is controlled by or associated with a Church. This violates the plain language of the statute which only allows two types of Church Plans, those established or maintained by a church or by a pension board (see 1 above).
Finally, the plaintiffs argue that even if these plans could be established as Church Plans, this would violate the Establishment Clause of the First Amendment of the United States Constitution.
In order to establish that the defendant hospitals do not share common religious bonds and convictions with the Catholic Church, the plaintiffs in the case against Ascension Health allege in paragraph 6 of the Complaint:
In short, Ascension operates in most respects like other non-profit hospital conglomerates. It expressly chooses not to prioritize the convictions of the Catholic Church (i) when it hires its employees—who become Ascension Plan participants, (ii) when it partners with joint venture partners, (iii) when it performs or authorizes medical procedures forbidden by the Catholic Church, (iv) when it selects its business investments, and (v) when it encourages its clients to contact myriad ministers, rabbis or spiritual advisors.
To further explore the specific violations of ERISA alleged, click here and read paragraphs 131 through 206 of the Complaint filed against Ascension Health, which alleged:
- Count 1 – Claim for Equitable Relief Pursuant to ERISA Section 502(a)(3)
- Count 2 – Claim for Failure to Provide Notice of Reduction in Benefit Accruals under ERISA Section 204(h)
- Count 3 – Claim for Violation of Reporting and Disclosure Provisions
- Count 4 – Claim for Failure to Provide Minimum Funding
- Count 5 – Claim for Failure to Establish the Plans Pursuant to a Written Instrument Meeting the Requirements of ERISA Section 402
- Count 6 – Claim for Failure to Establish a Trust Meeting the Requirements of ERISA Section 403
- Count 7 – Claim for Civil Money Penalty Pursuant to ERISA Section 502(a)(1)(A)
- Count 8 – Claim for Breach of Fiduciary Duty
- Count 9 – Claim for Declaratory Relief That the Church Plan Exemption Violates the Establishment Clause of the First Amendment of the Constitution, and Is Therefore Void and Ineffective
Of interest, the other three cases allege all of the same counts except Count 2, which is only alleged against Ascension Health. There, the plaintiffs have alleged they received only four days’ (just one business day’s) notice that their defined benefit pension plan would be frozen in violation of ERISA §204(h), which currently requires 45 days’ notice.
Also of interest, Keller Rohrback, LLP previously filed a case in the District of Minnesota in 2010, entitled Thorkelson v. The Publishing House of the Evangelical Lutheran Church of America, alleging that their defined benefit pension plan was not entitled to the Church Plan exemption. A copy of the complaint can be found here. The complaints filed in the recent cases are significantly more detailed than the 2010 complaint, and do not contain any allegations of state law violations. Ultimately, the district court in Thorkelson dismissed the ERISA claims finding that the plan could claim the exemption. A copy of the order can be found here. However, the parties later settled for $4.5 million with judgment in the case entered just last month on April 9, 2013.
UPDATE: May 28, 2013
A fifth lawsuit was filed on May 10, 2013: Medina v. Catholic Health Initiatives in the District of Colorado. Similar to the previous four lawsuits. Plaintiffs allege $892 million in underfunding. A copy of the complaint can be found here.
If you know of other cases that you would like tracked here, please email Tom at email@example.com.
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