Supreme Court to determine pension laws for religious-affiliated hospitals

By JoAnn Seltzer | Dec 20, 2016

WASHINGTON, D.C. – The U.S. Supreme Court will determine if hospitals with a church affiliation qualify for a church pension plan or if they must follow federal laws for pension benefits, a decision that would have a grave financial impact on hospitals.

For 30 years, the hospitals at the center of this suit have been told by the Internal Revenue Service they were exempt under the Employee Retirement Income Security Act (ERISA) because they are considered church plans based on their Catholic and Protestant church affiliations, but now that exemption is being challenged.

Former employees have brought cases against hospitals for not following ERISA, which includes expensive safeguards for employee pensions. The lower courts in the cases of Advocate Healthcare v. Stapleton, St. Peter's Healthcare v. Kaplan, and Dignity Health v. Rollins ruled against the hospitals saying to qualify as a church pension plan the plan must be established by a church. The three cases will be consolidated for the Supreme Court's review.

“The religious hospitals have been relying on an interpretation of the law for more than 30 years,” Kevin Snider, chief counsel for the Pacific Justice Institute told the Northern California Record. “That interpretation is that a pension plan can be exempt if maintained or controlled by a church, whether or not a church itself established the plan.”

This was based on the interpretation by the IRS, Department of Labor, and the Pension Benefit Guaranty Corp.

Dignity Health said it is pleased the Supreme Court has taken up its petition on this issue and says it has complied with the laws.

“We hold our employees with the highest regard as they are vital to the mission of our organization,” Dignity Health told the Northern California Record. “Our commitment is to ensure that our retirees and beneficiaries receive the benefits they have earned for their service. We believe we have complied with the law, including applicable IRS requirements for our retirement plans.”

If the Supreme Court rules in favor of the former employees, it would throw out laws the hospitals had relied on and would result in breaches of contracts, Snider said. The financial impact would be devastating.

“The ruling would cost billions to the hospitals and will result in reduction of services, restructuring or bankruptcy,” Snider said.

These religious hospitals provide many of the services to the poor who would not be able to afford care, those with mental disabilities and victims of abuse in their communities and these are the people most at risk if the court rules against the hospitals.

“The greatest harm will be visited on the poor if a religious hospital is forced to shut its doors,” Snider said. “From a constitutional standpoint, the implications of an adverse decision are sobering.”

Snider said that before 1980, the IRS determined if a hospital met the “religious” requirements on a case-by-case basis. The result was the IRS decided the church exemption should not apply to a ministry run by two orders of Catholic sisters because they were not “religious enough” and that caring for the sick was not a church function, Snider said. When the government gets to decide if a service is a church function it breaches the wall separating church and state, he said.

“During the early centuries, Christians rescued unwanted babies set out to die of exposure. Moreover, consistent with established Christian teaching, during the plagues that ravaged Rome, the Christians would care for the sick. In view of 2,000 years of practice, for any representative of the government to claim that ministering to the sick is 'not a function of the church' is comical,” Snider said.

Religious hospitals are seen as having deep pockets and this issue comes down to money, he said. There have been several dozen lawsuits filed against hospitals seeking billions of dollars.

The court is expected to hear the case in the spring and make a ruling next summer.

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