U.S. Supreme Court Hides Behind 1980 Law, Leaving Thousands Of Employees Of Church-Affiliated Hospital Unprotected

Do you struggle to save for retirement? Has your employer promised you a pension and, as a result, you contribute a little less to your 401(k) from each paycheck? If your employer mishandles your pension plan and can’t pay, what will you do? Can you survive on your 401(k) balance and, maybe, Social Security?

These are a few questions we should all be asking, and the answers to these questions underscore why we are paying attention to a recent decision issued by the United States Supreme Court in Advocate Healthcare Network et al. v. Stapleton et al., No. 16-74.  Part of this lawsuit originated in California, where employees of Dignity Health filed a lawsuit claiming the Dignity Health pension plan was being severely underfunded. These plan participants sought a ruling holding Dignity Health subject to the Employee Retirement Income Security Act (“ERISA”), a federal law passed in 1974 that protects pension plan participants.

The Supreme Court ruled against the plan participants, and in favor of Dignity Health, by upholding an outdated exemption to ERISA created by Congress in 1980 for pension plans established by religiously affiliated organizations.

What is ERISA “exemption,” and why is it such a big deal for pension plan participants?

Until 1974, many employers promised employees a pension benefit upon retirement, but then failed to set-aside sufficient funds to keep that promise. Some employers failed to invest the money properly and other employer executives embezzled the money for personal gain. Regardless of the cause, these situations left employees without any retirement security after a life-long career.

Congress enacted ERISA in 1974 in response to this crisis. The law requires employers offering pension plans to ensure such plans are adequately funded and that certain accounting and reporting rules are upheld. Plan participants can sue an employer in federal court if it fails to comply with this law.

If a pension plan is “exempt” from ERISA, participants must enforce their rights under state law, which is inconsistent from one state to the next, and provides fewer protections for plan participants.

If church-affiliated hospitals are operated like large corporations, then why are they exempt from ERISA and what problems does that cause?

When Congress enacted ERISA, it also created an exemption under the law for certain pension plans “established or maintained” by religious organizations. In 1980, congress expanded this exemption to cover certain “religiously-affiliated organizations,” such as church-affiliated hospitals.

Church-affiliated hospitals have grown dramatically since 1980 and now operate in almost every state in the country, including Dignity Health Care in California. These organizations generate billions of dollars in revenue every year and act like for-profit corporations. These organizations compete against other hospitals in the state that also offer pension benefits to employees. However, the Supreme Court’s ruling affirms an unfair advantage for church-affiliated pension plans by eliminating their obligation to bear the costs of complying with ERISA.

Why is the Supreme Court decision important?

Recently, some of these large church-affiliated hospital pension plans have become underfunded, which means they do not have sufficient money to fund their future payment obligations. Without ERISA protection, this will leave many employees of these religiously affiliated hospitals with little or no retirement security. Ironically, preventing that type of outcome is exactly why ERISA was enacted.

The Supreme Courts’ decision was unanimous, however, Justice Sonia Sotomayor issued a concurring opinion wherein she states this exemption for religiously affiliated pension plans could not be something Congress actually intended. Justice Sotomayor calls on Congress to amend the law and revoke the ERISA exemption at issue.

Congress should take action to amend the ERISA exemption, not only for the employees of Dignity Health, but for all employees who work in hospitals throughout California. The Supreme Court’s ruling gives large church-affiliated hospitals an unfair advantage over other privately owned hospitals, that now must face the choice of continuing to provide pensions and bear the cost of complying with ERISA, or eliminate pensions in order to compete.

Will Congress take action? Will Congress be persuaded by billion-dollar organizations like Dignity Health who have long enjoyed this exemption to look the other way? Those who care about pensions for working people should watch this issue and demand action from their Congressional representatives.

For more information, contact your labor law counsel.

By Adam Thomas | June 20 , 2017

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