OSF Church Plan Participants Settle for “ERISA Lite”

Benton, ILParticipants in the OSF Plans have agreed to settle an ERISA lawsuit, against OSF Healthcare System and related parties, which challenged the plan’s status a church plan. The settlement will require OSF to contribute $25 million over 5 years to the plans, and to provide participants with documents disclosing plan provisions and changes. In addition, participants will be permitted to request twice-yearly statements of their expected benefits.

In exchange, they must agree to drop their claims and to concede that the pension plans are not covered by ERISA. They are abandoning legal remedies for a promise of future dollars and the right to ask for information.

The settlement may be an acknowledgement that 2017 Supreme Court decision in Advocate Health Care Network v. Stapleton handed down after Smith v. OSF Healthcare System was filed, dimmed plaintiffs’ chances of success. The participants won the rights to have their retirement benefits funded as if the plans were covered by ERISA. Nonetheless, the settlement leaves in place the uncomfortable fact that lay workers at church-affiliated hospitals have fewer legal rights than workers who perform the same jobs at secular institutions.

Worried about vanishing pension benefits

In their 2016 Complaint, Sheilar Smith and other employees of St. Anthony’s Health Center claimed that OSF and its predecessors failed to adequately fund the pension benefits they anticipated receiving on retirement. (The OSF Plans are defined benefit retirement plans that, unlike 401k plans, require plan sponsors to make regular contributions toward benefits promised in the future.)

In addition, they had not received information about the financial status of their benefits. Under ERISA, these disclosure documents would include Summary Plan Descriptions, Summary Annual Reports, Notifications of Failure to Meet Minimum Funding, or Funding Notices. Nor had the OSF plans filed regular ERISA-mandated reports with the Department of Labor. The participants were left in the dark; they apparently had good reason to worry.

ERISA or exempt?

Before ERISA was enacted in 1974, employers who sponsored pension plans were not required to fund them on a regular basis, to stand behind them if they failed. As a result, some retirement plans failed and left workers with nothing. The 1963 shutdown of the Studebaker plant in South Bend, Indiana looms large in the history of ERISA.

Congress enacted ERISA to remedy the issue. No employer is required to offer a pension plan. But for those that do, the law requires that:

• plans be prudently funded;
• participants be informed on a regular basis as to the status of their benefits; and
• benefits be insured, at the employer’s expense, with the federal Pension Benefit Guaranty Corporation.

OSF sought to have the Complaint dismissed, arguing that the OSF plans are exempt from ERISA as church plans. OSF is an Illinois 501(c)(3) non-profit corporation, founded by The Sisters of the Third Order of St. Francis. It operates eleven acute care hospitals, home health care services and other health care facilities in Illinois and Michigan. OSF has defined-benefits plans covering its own direct employees and employees of St. Anthony's Health Center. ERISA’s exemption for church plans is grounded in the Free Exercise clause of the First Amendment and originally applied only to plans “established and maintained” for the employees of churches or associations of churches. In 1980, however, Congress broadened the exemption to include plans for employees of church-affiliated organizations.

The defendants in Smith succeeded in re-framing the substantive issue of whether the OSF plan participants’ benefits were secure as a question about whether OSF was a church-affiliated organization. They were initially successful in having the lawsuit dismissed, although that decision was later reversed by the Seventh Circuit. In the meantime, however, the Supreme Court had taken up consideration of Advocate Health Care Network.

Advocate Health Care Network narrows the question still further

In 2017 in Advocate Health Care Network, the Supreme Court held that:

“ERISA provides (1) that a ‘church plan’ means a ‘plan established and maintained . . . by a church’ and (2) that a ‘plan established and maintained . . . by a church’ is to ‘include[] a plan maintained by’ a principal-purpose organization. Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it.”

It was still possible to argue, as attorneys for OSF plan participants did, that OSF was not a principal purpose organization or, even if it is, that its involvement with the St. Anthony plan was so tenuous that it could hardly be said to “maintain” it.  But the grounds had gotten narrower, and the plaintiffs’ chances for success shrank accordingly. A settlement offer that got the plan participants a measure of security probably looked good. However, the central problem remains.

Why do lay workers at church-affiliated institutions have fewer legal rights?

The days of nursing nuns and teaching sisters at church-affiliated schools and hospitals are long past. Most workers in those institutions are lay people; they do the same jobs as teachers and healthcare workers at non-church affiliated schools and hospitals. They retire with the same financial needs. Why are they less protected by the law?

It is difficult to see why the First Amendment should be understood to allow church-affiliated employers to underfund pension plans or deny plan participants financial information. Nonetheless, just as settlements do not make law, courts do not make policy. They specialize in close textual analysis. In a bravura display of this skill, the Advocate Health Care Network decision works carefully through a three-proposition logic problem. This sort of micro-thin legal reasoning is enough to drive workers’ rights advocates mad.

But policy, as the decision correctly concludes, is the work of Congress. In the meantime, Smith demonstrates that an aggressively pursued class action ERISA lawsuit may still be the worker’s best friend.