Judge Stays Church Plan Label During Appeal

SAN FRANCISCO (CN) - Dignity Health convinced a judge to put on hold a ruling that its pension plans are not a "church plan" exempt from ERISA requirements while it appeals that finding.

The dispute stems from a class action filed by former Dignity Health billing coordinator Starla Rollins in April 2013, claiming that Dignity Health's pension benefits plan was underfunded in violation of the Employee Retirement Income Security Act (ERISA). Dignity countered that its plan need not conform to ERISA standards because it is a church plan.

Enacted in 1974, ERISA establishes minimum funding standards and disclosure obligations for employee benefit plans, among other requirements, to ensure that employees receive the benefits they are promised.

ERISA specifically exempts "church plans" from its requirements. The term "church plan" means "a plan established and maintained by its employees by a church or a convention or association of churches."

Last December, U.S. District Judge Thelton Henderson found that Dignity does not have statutory authority to establish its own plan and must follow ERISA regulations, a ruling that Dignity tried to appeal only for Henderson to refuse.

In July, Henderson found the plan was not exempt from ERISA requirements because it was established by Catholic Healthcare West, Dignity's predecessor, which is not a church.

He rejected arguments that the plan should be exempt because the Internal Revenue Service has consistently considered it exempt or because various religious women's orders controlled CHW when the plan was established in 1989, reasoning in July that an "erroneous IRS ruling...should not be permitted to trump a court's interpretation of a statute" and that even if the religious groups exhibited some control over CHW, "that alone is insufficient to set aside CHW's separate identity."

In October, Rollins moved for a permanent injunction and class certification. The court stayed the motions in November, after which Dignity Health again moved to certify the July order for interlocutory appeal.

Finding that the trajectory of the litigation will change significantly depending on the appellate court's ruling, Henderson now considers the appeal to be an "exceptional situation" justifying interlocutory appeal.

He noted that should the appeals court reverse his earlier ruling, for example, his court might have to determine if Dignity or its predecessor was "associated with" or "controlled by" a church while it maintained the plan, according to the ruling.

The judge also found that other courts have disagreed with his interpretation, including a ruling from the District of Colorado that held that a plan can be exempt if it is maintained by a church but not established by one and a ruling from the Western District of Washington that held that the "term 'church plan' is somewhat misleading because even a plan established by a corporation controlled by or associated with a church can also qualify as a church plan."

Furthermore, according to Henderson, allowing an interlocutory appeal will "materially advance the termination of the litigation."

Henderson decided to stay the case over Rollins' objections that her class would lack ERISA protections for retirement benefits, noting that the defendants had put forth evidence indicating the plan is adequately funded for the next decade.

Rollins is represented by Bruce Rinaldi of Cohen, Milstein, Sellers & Toll in Washington, D.C.

Barry Landsberg of Manatt, Phelps & Phillips in Los Angeles represents Dignity Health.

Neither side replied immediately to a request for comment.

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