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Court Holds That Health Care Company Cannot Use ERISA's Church Plan Exemption

Background

A group of current and former employees of Dignity Health filed a class action against their employer’s pension plan. They alleged that the religiously affiliated hospital has improperly claimed that its pension plan is exempt from the requirements of the Employee Retirement Income Security Act (ERISA) as a church plan, stating that the church plan exemption was intended to apply only to plans that were started or administered by churches themselves. Because Dignity claimed its pension plan was a church plan, the Dignity Pension Plan did not comply with many of the requirements to protect plan participants under ERISA. The U.S. Court of Appeals for the Ninth Circuit granted Dignity’s request for an immediate appeal from the district court’s decision. The district court had found that Dignity’s pension plan did not meet the church plan exemption requirements.

In its decision, the Ninth Circuit held that the clear language of ERISA requires that a church plan must actually be established by a church. Moreover, policy considerations counseled against a ruling in favor of the health care company. In particular, the court was concerned about the number of hospitals that treated their pension plans as church plans, allowed them to become underfunded, and then ran into financial troubles that left their employees out of luck. AARP’s brief explained to the court all of the protections that employees would lose — including proper funding of benefits and loss of the insurance provided by the Pension Benefit Guaranty Corporation — if the court were to find that ERISA’s church plan exemption applies.

What’s At Stake

This case is important to people over the age of 50, in particular, because if their benefits are reduced due to a pension plan’s inadequate funding and there is no PBGC protection, these employees will lose their retirement benefits and will not have enough time to make up the shortfall. The case immediately affects the approximately 60,000 participants in Dignity’s pension plan.

Case Status

In Rollins v. Dignity Health, the U.S. Court of Appeals for the Ninth Circuit held that a health care company could not treat its pension plan as a church plan exempt from ERISA's requirements because a church did not initially establish the plan.