A growing number of lawsuits and some key court rulings are making it harder for church-affiliated defined benefit plans to be exempt from federal pension rules.
While the practice of getting that exemption, which is obtained in case-by-case rulings from the Internal Revenue Service, is not new, plan participants increasingly are hiring lawyers to challenge the efforts by some of the biggest names in health care that are affiliated with religious organizations.
And court decisions in recent cases are favoring the participants.
The latest and most definitive court decision came July 22, when U.S. District Court Judge Thelton Henderson in San Francisco ruled the pension plan of Dignity Health should not be able to keep its church plan exemption, but instead should be covered by the Employee Retirement Income Security Act. Lawyers for San Francisco-based Dignity Health had argued its pension plan had long operated as a church plan sanctioned by the IRS. That, said Mr. Henderson, was “an erroneous IRS ruling (that) should not be permitted to trump a court's interpretation of a statute.”
Dignity Health executives said in a statement after the ruling that they will continue to defend the case. Dignity Health remains “committed to ensuring our retirees and beneficiaries receive the benefits they have earned,” the statement said.
“We are starting to get a read of the way the courts are looking at this when the issue is squarely teed up in front of them,” said Lynn Sarko, a principal with Keller Rohrback LLP in Seattle, which along with Cohen Milstein Sellers & Toll PLLC in Washington is leading the legal campaign to undo church plan rulings benefiting large hospital systems.
The eight lawsuits filed by the two ERISA law firms are collectively seeking more than $2 billion in missed pension contributions and other damages. Among other claims, the lawsuits challenge interpretations made by the IRS and the Department of Labor that allowed large non-profit hospitals, which have varying degrees of church affiliations, to be exempt from ERISA. The cases single out “those that are clearly abusing the system and trying to misuse a narrow exemption,” said Mr. Sarko.