Court Rules In First of Five Church Plan Retirement Plan Cases Rejecting Dignity Health Retirement Plan Church Plan Status

By: Mark E. Furlane and David R. Levin

Last spring five complaints were filed against hospital systems challenging the church plan status of one or more of their plans.  The Hospital systems were Dignity Health, San Francisco; Ascension Health Alliance, St. Louis; Catholic Health Initiatives, Englewood, Colo., Catholic Health East, Newtown Square, Pa.; and Saint Peter’s Healthcare System, New Brunswick, N.J.  They all operated their pension plans under church plan status.  Motions to dismiss were filed and fully briefed in four of those cases and oral argument was heard in two of them.

On December 12, 2013, the district court for the Northern District of California ruled in one of them, Rollins v. Dignity Health, agreeing with Plaintiff that the Dignity Health retirement plan was not a church plan.  The suit claimed Dignity Health is “not a church or a convention or association of churches” nor does it meet any of the other criteria necessary to be considered a church plan sponsor under federal regulations.

In reaching its ruling that the retirement plan was not a church plan, the court rejected Dignity Health’s argument that its Pension Fund Sub-Committee met the committee approach to church plan status under 29 U.S.C. §1002(33)(C)(i).  The court ruled that under 29 U.S.C. §1002(33)(A), only a church or convention of churches can establish a church plan.  The court then rejected Dignity Health’s argument that the Plan met an alternative means of establishing a church plan found in 29 U.S.C. §1002(33)(C)(i).  According to Dignity Health, that section allows church plan status for plans not established by a church or convention or association of churches so long as they are “maintained” by an “organization” controlled or associated with a church, where the “organization’s” principal purpose is the administration of benefits.  The court rejected that argument, stating that it violates a cardinal rule of statutory construction, and concluding that the organization itself must have a principal purpose of benefit plan administration, not its Retirement Plan Sub-Committee.

The Dignity Health suit and the other four lawsuits demand that the pension plans be brought into compliance with ERISA and that the plans make whole any losses to participants; pay civil penalties and pay attorney fees and expenses to the plaintiff.  If the Dignity Health ruling is followed in the other cases or affirmed on appeal it will have a significant impact on the plans, both operationally and financially.  The financial implications of a binding ruling that upholds the position of the district court may include funding the plans to meet minimum funding levels, payment of PBGC premiums, and losses to participants harmed by plan terms and operations less favorable than those required by ERISA.