Supreme Court takes Christian-affiliated hospital pension case

[December 03, 2016]  By Brendan Pierson

(Reuters) - The U.S. Supreme Court on Friday agreed to hear appeals by Christian-affiliated hospital systems of lower court rulings that gave the green light to employee lawsuits accusing them of wrongly claiming a religious exemption from federal pension law.

New Jersey-based St. Peter's Healthcare System, Illinois-based Advocate Health System and California-based Dignity Health each appealed separate federal appeals courts rulings that refused to throw out the employee lawsuits. The justices agreed to hear all three cases.

The employees in effect accuse the hospital systems of being big businesses posing as church organizations in order to avoid minimum funding and reporting requirements on employee pension plans mandated by the federal Employee Retirement Income Security Act, or ERISA.

The suits state that by claiming the exemption, the hospital systems are putting employee pension plans at risk. The hospital systems said allowing the lawsuits to go forward could jeopardize nonprofit hospitals' ability to provide care.

The three hospital systems maintain that their religious affiliation makes them exempt from ERISA. St. Peters is affiliated with the Roman Catholic Church, Dignity is formerly Catholic-affiliated but still operates many Catholic hospitals, and Advocate is affiliated with the Evangelical Lutheran Church in America and United Church of Christ.

Hundreds of hospitals and hospital systems have claimed the exemption since 1980, when Congress amended ERISA to extend what is known as the "church plan" exemption, originally only for churches, more broadly to certain religiously affiliated organizations.

In recent years, employees, many represented by the same law firms, have filed lawsuits challenging hospitals' use of the exemption.

Trial court rulings have been mixed. But the 3rd, 7th and 9th U.S. Circuit Courts of Appeals ruled against St. Peter's, Advocate and Dignity, respectively, refusing to dismiss employees' lawsuits against them. No other federal appeals courts have decided cases on the issue.

All three courts found that the plain language of ERISA allows the exemption only for organizations set up by churches to manage their employee pension plans, not for wholly separate entities like hospitals. They rejected hospitals' arguments that they relied on opinions from the Internal Revenue Service, which has allowed them to claim the church plan exemption since the early 1980s.

Supreme Court is seen in Washington, U.S., October 3, 2016. REUTERS/Yuri Gripas

The extent of hospitals' potential liability is not clear, since church plans are not subject to the reporting requirements of ERISA. The employees suing St. Peter's and Dignity claim that their plans are underfunded by about $70 million and $1.2 billion, respectively. Advocate is also accused of underfunding its plan, though the complaint in that case does not say by how much.

The hospitals have denied their plans are underfunded.

The plaintiffs are also seeking retroactive penalties for past violations of ERISA, which the hospitals said could add up to hundreds of millions or billions of dollars.

In another case involving religion, the Supreme Court in May avoided making a major ruling by telling lower courts to reconsider whether nonprofit Christian employers should be exempt from a federal requirement that they provide female workers with medical insurance paying for birth control.

(Corrects paragraph 13 to show justices sent religious rights case back to lower courts in May but did not deadlock 4-4.)

(Reporting by Brendan Pierson in New York; Additional reporting by Lawrence Hurley in Washington; Editing by Alexia Garamfalvi and Will Dunham)

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