California ERISA Lawsuit Alleges Pension Underfunding Worth $1.2 Billion


Los Angeles, CA: A California ERISA lawsuit is demonstrative of the interpretation possible with regard to just what is, and isn’t a so-called ‘church’ pension plan. The latter is a less-restrictive, less-regulated entity that is not required to meet the normally strict guidelines and requirements for managing an employee pension plan under provisions of the Employee Retirement Income Security Act, as amended in 1974.

A class action ERISA lawsuit was filed in 2013 by lead plaintiff Starla Rollins, at one time the billing coordinator for Dignity Health, a nonprofit associated with the Catholic Church. Rollins had complained that, in her view, the employee pension plan maintained by Dignity was grossly under-funded and did not conform to the standards and requirements set out according to ERISA guidelines.

It was an allegation not without substance, as Rollins asserted the pension fund had been shortchanged to the tune of $1.2 billion. Dignity’s response, in sum, remained that given Dignity’s association with the Catholic Church, Dignity qualified to operate and manage the fund as a church plan.

Rollins decided to let the Courts weigh in.

Dignity Health was established when two California-based congregations affiliated with the Sisters of Mercy established nonprofit hospital systems, subsequently merging everything into Catholic Healthcare West. The pension plans associated with Catholic Healthcare West, the hospitals and the two Sisters of Mercy congregations were brought together and merged in 1989.

Dignity does not dispute that it operates the pension fund without adhering to standard ERISA rules, but that it nonetheless manages the fund under a church plan exemption granted through a 1983 amendment to ERISA that allows organizations controlled by, or affiliated with a church, with the principal purpose of providing employee benefits, to
maintain church plans.

The initial ruling by the US District Court, Northern District of California went against the defendant – Dignity – given the court’s assertion that a church plan under ERISA is required to be established by an actual church. That ruling was appealed to the US Court of Appeals for the Ninth Circuit, which upheld the lower court’s ruling.

Dignity’s position, according to court records, holds that: “If a church plan may cover employees of a church-associated organization, and a church-associated organization may maintain the plan, Congress had no reason to insist that the church itself must establish the plan,” when ERISA was amended in 1983.

Writing for the panel, US Circuit Judge William Fletcher of the Ninth Circuit did not agree, citing Dignity for coming up with an argument based on a misreading of the legislative history of ERISA.

“There is nothing in the legislative history to suggest that Congress intended, in expanding the definition of eligible Employees, to eliminate the requirement that a church plan be established by a church,” Fletcher said. “Nor is there anything in
the legislative history to suggest that Congress intended, in broadening the definition of organizations that are authorized to maintain a church plan, to eliminate that same requirement.”

The two lower court’s rulings were appealed to the US Supreme Court, which on September 21st granted Dignity a temporary stay on the lower court’s ruling and mandate, which gives Dignity some breathing room until the high court has the opportunity to hear the case and weigh in.

The case is Dignity Health et al. v. Starla Rollins, Case No. 16-258, in the Supreme Court of the United States.

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