Participants in pension plans exempt from federal regulation due to their church plan status are forging ahead with legal and legislative challenges and some new tactics, despite a 2017 Supreme Court decision that did not go their way.
"We are optimistic that both the federal and state courts will do right by the retirees," said Karen Ferguson, director of the Pension Rights Center in Washington, which often files amicus briefs in church plan lawsuits.
Legal battles over which sponsors are entitled to be exempt from the Employee Retirement Income Security Act and its detailed rules on funding obligations, vesting, reporting and disclosure center around religiously affiliated health-care systems that have operated as exempt. Federal lawsuits brought by plan participants against large health-care companies claiming church plan status ask courts to revoke that status and force sponsors to go by ERISA rules. While the health-care organizations may be non-profit, argues plaintiffs law firm Keller Rohrback LLP, "they often have assets on par with Fortune 100 companies."
Three such sponsors — Dignity Health, Advocate Health Care and Saint Peter's Healthcare System — welcomed a unanimous Supreme Court decision in June 2017 that pension plans did not have to be established by a church to be exempt from ERISA, as long as they are controlled by or associated with one.
It was a case closely watched by similarly situated plans sponsored by health-care systems involved in related cases that according to the Supreme Court petition had an estimated $4 billion in combined underfunding and roughly 300,000 plan participants.
It was also keenly tracked by participants in those plans, who zero in on the fact that the Supreme Court ruling was limited to interpreting what Congress intended when it created the church plan exemption in 1980, and did not decide whether other requirements for exemption were met, leaving it to lower courts to decide those.
The key issues being argued now center around the degree of connection between a pension plan and the religious organization, including how the pension plan is maintained or controlled, and the sponsor's principal purpose. District and appellate courts have offered differing opinions on whether the church plan statutory exemption applies only to plans established and maintained by churches or church pension boards, or if it extends to plans established by other church-affiliated non-profit organizations such as hospitals, schools and social service agencies.
While court rulings have gone both for and against plan participants, the filing of such cases has often led to several multimillion-dollar settlements in recent years, for practical and financial reasons.
The less-successful plaintiffs involved in the three sponsors' combined Supreme Court case have since amended their complaints to keep the legal challenges alive in federal courts, and some are headed for settlement, including the one against Dignity Health. Those cases, and more expected to be filed shortly, including a possible challenge to a church-affiliated defined contribution plan's vesting rules, are now likely to be more fact-specific, legal experts on both sides say.