A number of class-action lawsuits were recently filed against non-profit hospital companies over the status of their retirement plans.  The hospital companies are affiliated with the Catholic Church and have designated their retirement plans as "church plans."  Church plans are usually exempt from the requirements of ERISA.

The class-action lawsuits challenge the status of these plans as church plans on several grounds.  First, plaintiffs argue that the plan sponsors are not sufficiently affiliated with the Catholic Church to meet the church plan exception.  In support of this argument, plaintiffs note that the non-profit hospitals hire employees regardless of their religious convictions, enter into joint ventures with partners that do not share religious convictions common to the Catholic Church, perform medical procedures such as elective sterilizations, and encourage patients to reach out to their own spiritual advisors (whether Catholic or not) for guidance.

Plaintiffs also argue that the Internal Revenue Service and U.S. Department of Labor have consistently misread and misapplied ERISA's church plan exemption.  Further, plaintiffs contend that the extension of the church plan exemption to a non-profit hospital is a violation of the Establishment Clause of the U.S. Constitution.

The financial stakes in these cases and similar litigation are very high. If these retirement plans were determined not to be church plans, the plan sponsors would have to comply with ERISA.  ERISA compliance would include paying PBGC premiums for the pension plans, funding the pension plans to the levels required by ERISA and providing additional disclosures to plan participants.  Based on the plaintiffs' filings, ERISA funding requirements could involve hundreds of millions of dollars of additional contributions.  Clearly, this could be financially devastating to a plan sponsor.  Such high stakes could cause a church plan sponsor to settle a lawsuit even when the sponsor has an otherwise strong legal position.

Church plan sponsors, particularly in the non-profit healthcare arena, should take cases like this very seriously.  Steps that church plan sponsors can take now include:

  • Consult with legal counsel about the church plan exception and the strengths and weaknesses of its position as a church plan sponsor
  • Establish a process for identifying and following church plan litigation involving similar plan sponsors
  • Ensure that inquiries about the plan's status as a church plan are handled at the appropriate level.  Such inquiries, especially from plan participants, may be precursors to a class-action lawsuit.

For further information visit Waller's ERISA Exchange blog

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