A pending trio of U.S. Supreme Court cases could impact the retirements of hundreds of thousands of Americans, simply because they work for religiously affiliated hospitals and other entities.
The cases focus on a federal law known as the Employee Retirement Income Security Act (ERISA), which requires most employers who offer pension plans to include several measures of security and transparency for their employees.
The safeguards include adequately funding the plans to ensure there is enough money to pay out the promised pensions to retirees, insuring the plans through a government-backed program to protect against underfunding and regularly informing employees about the status and financial health of the pensions.
Since the 1980s, the federal government has exempted houses of worship from these requirements to prevent government intrusion into church finances and records.
On the surface, that might sound like a move designed to protect church-state separation. But in recent years, a problem has arisen: Religiously affiliated organizations, particularly hospitals and health systems that employ thousands of people in secular roles, have taken advantage of this loophole to underfund employee pension plans.
Employees of these organizations are fighting back, and the issue now is headed to the Supreme Court. The high court in December agreed to hear lawsuits filed by employees of three health systems that altogether employ nearly 100,000 people. Those cases include:
- Dignity Health, et al. v. Starla Rollins: Dignity, a San Francisco-based health system formerly known as Catholic Healthcare West, is the country’s fifth-largest health care provider with 60,000 employees.
- Advocate Health Care Network, et al. v. Maria Stapleton, et al.: Illinois-based Advocate is affiliated with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ. It operates 12 hospitals and more than 250 other health care facilities and employs 33,000 people.
- St. Peter’s Healthcare System, et al. v. Laurence Kaplan: The New Jersey-based health system, which has ties to the Roman Catholic Diocese of Metuchen, N.J., employs about 2,800 people.
Americans United filed a friend-of-the-court brief at the federal appeals court level supporting the employees in these three cases and will file again before the Supreme Court.
“Unlike houses of worship, religiously affiliated entities regularly employ people of other faiths, and many if not most of these employees perform functions that are secular,” AU noted. “[T]hese employees are entitled to the same protection for their employment benefits as everyone else.”
AU points out that the separation of church and state forbids government from meddling in the internal affairs of houses of worship, but entities that happen to have a religious connection are another matter. AU’s legal brief pointed to several court cases that have found that religious accommodations that burden or harm third parties such as employees don’t have to be granted.
AU argues the employees of the health systems whose pensions don’t comply with ERISA face substantial harm – namely, the promised pension money may not be there when they retire.
According to court documents, Dignity Health was accused of underfunding its pension plan by as much as $1.2 billion as of 2012. St. Peter’s plan was underfunded by $30 million in 2014.
AU notes several examples of employees who lost or stood to lose pension benefits because their religiously affiliated employers’ plans were not complying with ERISA.
Augsburg Fortress, the Minneapolis-based publishing arm of the Evangelical Lutheran Church of America, eliminated its pension plan in 2010 after announcing it had less than half of the money needed to pay out $24 million in pension obligations. The Minneapolis/St. Paul Business Journal reported a subsequent lawsuit filed by Augsburg’s nearly 500 employees resulted in a 2013 settlement of $4.5 million, which meant workers could recoup about a quarter of their promised pensions.
About 1,100 non-union employees and retirees of St. Mary’s General Hospital in Passaic, N.J., likely will lose pension funds because the hospital’s pension plan was underfunded by $17 million as of 2013, according to the USA Today-affiliated NorthJersey.com. The news website reported Prime Healthcare Services, a for-profit, California-based company, only partially bailed out the pension plan when it bought the hospital in 2014.
Employees of another New Jersey health system – Hospital Center at Orange – stood to lose their pensions when Cathedral Healthcare System shut down the hospital in 2004 after taking ownership and dropping ERISA protections from the pension plan. The 800 employees faced the drying up of the pension fund by the end of 2013 until the Pension Benefit Guaranty Corp., the federal government agency that insures pensions, agreed to step in and cover the $30 million shortfall, according to the Newark Star-Ledger.
The non-profit consumer organization Pension Rights Center, which advocated for the Hospital Center employees, offers testimony on its website from some of those workers who faced the loss of their retirement benefits before the pension insurance agency stepped in.
“Through the years we were always told that our retirement money was ours, no one could touch it, it was safe, etc.,” said Linda Ponce, a 27-year employee. “Well, since it was changed to a church plan several years ago, we have been told the funds will be gone in about three years! I don’t have another 27 years to work with another employer, and with the worsening economy, my current employer is cutting benefits. It is just not fair that I will have to struggle in my golden years.”
Diane Davis, a registered nurse who had worked at Hospital Center for 21 years, echoed those concerns.
“During those difficult times we all endured and accepted no pay raises and frozen pensions in hopes that our hospital would recover from those financial difficulties,” Davis said. “We all worked very hard and gave 100 percent to our patients and the hospital. Is our reward for all the years of service (lost) earnings that had been promised to us?”
In addition to insuring pensions, ERISA also sets limits on how long it takes a pension to become vested – the point at which an employee can leave a job and still collect pension benefits from that employer. Without ERISA limits, employers could trap employees at their jobs for lengthy periods while the workers wait for their pensions to become vested.
Advocate Health Care, for example, required employees to work there for five years before their pension was vested, while ERISA would have set a three-year limit for a similar plan.
Pensions are part of employee compensation packages, just like salary and benefits. Some employees may choose to accept lower wages upfront in exchange for the security of a pension later on.
Not only is the lack of pension security a slap in the face to employees who accepted lower wages on employers’ promises of a pension later, but many employees may not realize those promises could come up empty. AU notes the employees of Dignity, Advocate and St. Peter’s don’t receive annual reports or pension benefits statements about their plans – leaving them in the dark about the health of their pensions.
Advocate informed its employees about the lack of ERISA protections by including a single sentence on the 26th page of a 27-page booklet. Despite ditching ERISA protections in 2006, St. Peter’s didn’t inform employees of the move until 2011 – the year the Internal Revenue Service began requiring employers to notify workers if the plans weren’t protected by ERISA.
Since the pension plans at all three entities began as ERISA-compliant plans, many employees were blindsided when they learned their plans were changed. St. Peter’s pension plan was launched in 1974 and was ERISA-compliant for more than three decades. Advocate’s pension plan began in 1973 and was protected by ERISA until about 1980.
Dignity’s pension plan included ERISA protections in 1989 when it was formed from seven pension plans operated by entities that were merged to become Dignity. Three years later, the pensions were converted into a plan not covered by ERISA.
Starla Rollins, the woman who filed the lawsuit against Dignity, worked as a billing coordinator for 26 years at San Bernardino Community Hospital, which became part of the Dignity network in 1998. Her pension was absorbed into Dignity’s plan and lost its ERISA protections.
Americans United noted there have been a plethora of hospital mergers and a growing trend of health systems gaining religious affiliations, which means an increasing number of employee pensions are at risk.
In a 2016 report titled “Health Care Denied,” the American Civil Liberties Union found one in six hospital beds in the United States is located in a Catholic hospital. The ACLU reported Catholic-affiliated hospitals had increased 22 percent since 2001, and in 46 regions, the federal government had designated Catholic hospitals as the “sole community hospital.”
The Catholic Health Association of the United States in 2016 estimated Catholic health systems employ nearly 750,000 people. That doesn’t take into account hospitals with other religious affiliations, like Advocate Health’s ties to the Evangelical Lutherans, or Baptist-affiliated hospitals.
“Because of these mergers, many employees who did not seek out a religiously affiliated employer are now working for one, and there may be few or no secular alternatives,” AU wrote. “These employees should not be forced to jeopardize their retirement savings as a result.”
Three federal appeals courts already have ruled that because the Advocate, Dignity and St. Peter’s pension plans were not initially established as church plans, they should not be considered as such and must comply with ERISA.
Interestingly, both sides are invoking church-state separation in making their arguments. The health systems have asserted that forcing them to comply with ERISA will lead to the government’s getting overly involved in religion in order to analyze the entities’ beliefs and determine whether they should comply with the federal pension guidelines.
But Americans United finds that argument unpersuasive. AU responds that there’s a crucial difference between a house of worship that provides clearly sectarian things like worship and prayer, and a religiously affiliated entity such as a hospital that provides mostly secular services and hires people without regard to their religious beliefs.
AU says the government is capable of distinguishing between the two.
“[A]ssessing whether or not an entity is a church requires no religious judgment,” AU wrote. “Instead, it involves the application of neutral criteria related to the functions performed by the entity, not the type or depth of the entity’s religious beliefs.”
The tax code, for instance, is set up to make distinctions about whether an entity is a house of worship.
If the government weren’t able to make such judgment calls, “a host of other exemptions, which have long been limited to actual houses of worship, might need to be extended to all religiously affiliated nonprofits,” AU added. “The result would be a nonprofit caste system – religious nonprofits would be exempt from most regulations, while secular nonprofits would be forced to comply with them – that would itself violate [church-state separation].”
The outcomes of these cases could have widespread ramifications. The Pension Rights Center lists a slew of other federal lawsuits involving health systems that operate pension plans that don’t follow ERISA. Several of those cases are on hold while awaiting the outcome of the Supreme Court cases; a handful of cases have been settled and nearly two dozen were filed in 2016 and still are pending.
In requesting that the Supreme Court review the issue, Advocate’s attorneys acknowledged the impact the high court’s decision could have.
“The lawsuits filed to date alone involve benefit plans affecting nearly a million people,” Advocate’s petition reads. “These suits seek billions of dollars in retroactive liability and a wholesale upheaval in the administration of pension plans affecting religious employers and employees across the country.”
While the petition references concerns about the financial health of the health systems, the attorneys representing Maria Stapleton, Judith Lukas, Sharon Roberts and Antoine Fox – the employees suing Advocate – are less sympathetic in their response to Advocate’s petition.
“[The health systems] contend that the ‘vast majority of benefit plans currently operated as church plans were not established by churches themselves,’” the attorneys pointed out. “[Their] carefully worded assertion merely reflects the fact that hundreds of church-associated hospital conglomerates, often at the urging of ‘gotcha’ benefit consultants, have in recent decades exploited a misreading of ERISA to lower their costs by claiming church-plan status for plans that had been operated – correctly – as ERISA plans.”
As this issue of Church & State went to press, oral arguments before the Supreme Court had not yet been scheduled in these cases, but Americans United will stay on top of the issue.
Bradley Girard, an Americans United attorney and Steven Gey Fellow, observed on AU’s “Wall of Separation” blog that the cases raise compelling issues that could affect anyone who works for a religiously affiliated group.
“Hundreds of thousands of employees nationwide are at risk of losing hundreds of millions, if not billions, of dollars in retirement funds,” Girard wrote. “And they aren’t even being told that their money is being taken away from them. That’s just wrong. When these cases are heard in the Supreme Court, we will continue working to ensure that ERISA’s narrow exemption intended to avoid having the government muck around in church finances isn’t used to strip the financial security of hospital workers across the country.”