Supreme Court hears religious health care system pension case

Three religious-affiliated, nonprofit health care systems are asking the U.S. Supreme Court to step into a multimillion-dollar battle with two plaintiffs firms that claim the pension plans of the medical networks are not exempt from federal law.

Related: Supreme Court rules on health plan ERISA subrogation case

Lisa Blatt, head of Arnold & Porter’s Supreme Court and appellate practice, filed petitions in the high court for three nonprofits that are targets of class actions brought by the Washington firm Cohen Milstein Sellers & Toll and Seattle’s Keller Rohrback.

Plaintiffs lawyers began suing nonprofit religious employers in 2013, arguing that their pension plans did not qualify as “church plans” that are exempt from the insurance premiums, requirements and protections of the federal Employee Retirement Income Security Act. Those lawsuits, Blatt argued, defy 30 years of federal administrative rulings that church plans do not have to be established by churches.

“As the firms themselves recently observed, these lawyers ‘have for years together developed and litigated the innovative theory of liability at issue here,’ ” Blatt wrote. She said the firms seek “ billions of dollars in retroactive liability and a wholesale upheaval in the administration of pension plans affecting religious employers and employees across the country.”

In the last three years, plaintiffs firms have filed 36 class actions against hospital systems, claiming their pension plans were not church plans, according to the petitions. The pending cases in the Supreme Court are Advocate Health Care Network v. Stapleton, Dignity Health v. Rollins and Saint Peter’s Healthcare System v. Kaplan.

Cohen Milstein and Keller Rohrback have urged the justices not to review lower court decisions. The three federal appeals courts —the Third, Seventh and Ninth circuits — agreed with the plaintiffs’ interpretation that only pension plans “established by a church” are entitled to the church-plan exemption under the Employee Retirement Income Security Act, or ERISA. Advocate Health Care is based in Illinois, Dignity Health in California and Saint Peter’s in New Jersey.

The plaintiffs firms contend that “hundreds of church-associated hospital conglomerates, often at the urging of ‘gotcha’ benefit consultants, have in recent decades exploited a misreading of ERISA to lower their costs by claiming church-plan status for plans that had been operated—correctly—as ERISA plans.”

Those plans, Cohen Milstein’s Karen Handorf said in a brief, now are often substandard, underfunded—and no church stands behind them.

The 33,000 putative plaintiffs in the case against Advocate, Blatt said, seek $110 a day for every day Advocate Health Care did not provide benefit statements of funding notices. “Stated differently, for just one year, respondents seek over $3.9 billion in penalties,” Blatt wrote.

In May, In May, Saint Francis Hospital and Medical Center in Connecticut reportedly agreed to settle a church plan lawsuit for $107 million.

“Just from a dollars and cents perspective, it’s a big issue,” said Eric Rassbach of the Becket Fund for Religious Liberty, which filed a brief in support of the health care systems. “You’re dealing with a whole lot of pension plans affected by this.”

‘Established and maintained by a church’

Church plans have been exempt from the Employee Retirement Income Security Act since that law was enacted in 1974. With the exemption, Congress sought to avoid government scrutiny of confidential church books and activities. In 1974, the employee retirement act defined a church plan as one “established and maintained for its employees by a church or by a convention or association of churches” that is tax-exempt.

In 1980, Congress amended the church-plan exemption to include “a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.”

The high court battle is over whether the “established and maintained by a church” requirement still applies.

Blatt, seen here, said in her petition for Advocate Health Care that the IRS in 1983 concluded a pension plan may qualify as a church plan in two ways: “established and maintained by a church,” or maintained by a church-controlled or associated organization.

Since then, Blatt told the justices, the Internal Revenue Service has issued more than 500 private letter rulings confirming that the plans of qualifying, church-affiliated organizations—including her clients—are exempt regardless of whether they were established by churches. The U.S. Labor Department has issued 70 advisory opinions to that effect, Blatt said.