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March 30, 2017

SCOTUS hears arguments in hospital pensions case

Daily Briefing

The Supreme Court on Monday heard oral arguments in a case challenging whether religiously affiliated health care providers can be exempt from certain federal pension rules.

Health systems sued over pension plans

Workers at three religiously affiliated health systems filed separate lawsuits arguing that their employers wrongfully claimed exemptions to the Employee Retirement Income Security Act (ERISA), and as a result have underfunded their pension plans. The health systems—Dignity Health, Advocate Health Care Network, and Saint Peter's Healthcare System—have argued that their religious affiliations qualify them for ERISA exemptions.

The cases could have significant consequences for hospital workers' retirement benefits because a pension plan subject to ERISA has to follow strict funding requirements and provide government-backed insurance, while exempt pension plans have more flexibility and can alter workers' benefits based on the employer's financial state.

Appeals courts in the 3rd Circuit, 7th Circuit, and 9th Circuit have ruled against the health systems. The health systems all appealed to the Supreme Court, and the high court last year stayed the 9th Circuit's ruling against Dignity Health, stopping it from taking effect as the high court decided whether to hear the case. The Supreme Court in December 2016 said it would take up the three cases in one consolidated case.

Justices hear oral arguments

The Supreme Court justices seemed split on the case during oral arguments, the AP reports.

According to the Associated Press, much of Monday's oral arguments focused on whether ERISA, which requires pension plans to be fully funded and insured, applies to the hospitals' plans.

Lisa Blatt, who is representing hospitals in the case, argued that when Congress created certain exemptions to ERISA, the lawmakers intended to exempt pension plans that are controlled by a church, regardless of whether a church, itself, created the plans. Further, she noted that IRS and the Department of Labor for decades have approved the hospital plans' exemptions from ERISA. Blatt argued that ruling against the hospitals now would "jettison 30 years of settled expectations" and open the hospitals up to billions of dollars in liability for the plans.

Justice Anthony Kennedy raised a similar point, saying the hospitals had "proceed[ed] in good faith" in administering the plans under the exemption because IRS for more than 30 years had issued hundreds of letters approving the exemption. He said the letters provided the hospitals with "assurance ... that what they were doing was lawful."

Justice Samuel Alito also said ruling against hospitals could cause them to potentially owe billions of dollars in damages.

However, James Feldman, a lawyer representing employees in the case, argued that any damages the hospitals could owe if it is ruled they do not qualify for the exemption likely would be reduced, or not assessed at all, because there actions had been approved by IRS. He said the cases "overwhelmingly" seek to bring the plans into compliance with ERISA going forward, not retroactively. However, Feldman declined to "disavow any request for penalties," Bloomberg BNA reports.

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During oral arguments, Feldman argued that Congress did not intend to exempt religiously affiliated hospitals from ERISA and that IRS had incorrectly interpreted the exemption. "These plans have zero involvement with any church," he said.

Justice Ruth Bader Ginsburg took issue with IRS' interpretation of the exemption, calling it "thinly reasoned."

Justice Elena Kagan expressed a similar thought, saying Congress used "very odd language" when it created the exemption if it had intended to make it apply to pension plans not directly administered by a church.

Deputy Solicitor General Malcolm Stewart—a lawyer for the Department of Justice, which is backing hospitals in the case—agreed that Congress could have been more clear when creating the exemption. However, he said lawmakers had wanted to protect religiously affiliated hospitals from being able to be sued under ERISA.

Overall, Justice Sonia Sotomayor said, "I'm torn," adding, "This could be read either way in my mind."

Next steps

The Supreme Court is expected to rule in the case by late June. According to the AP, the ruling ultimately could affect the retirement benefits of about one million workers throughout the United States (Hananel, AP/Miami Herald, 3/27; Wille, Bloomberg BNA, 3/28).

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