March 17, 2016

(WASHINGTON D.C. - March 17, 2016) A federal appeals court has ruled that a pension plan established by Illinois-based Advocate Health Care Network does not qualify as a “church plan” exempt from the Employee Retirement Income Security Act (ERISA), the federal pension law that requires such plans to be fully funded and provides employees with certain rights related to benefit entitlements, according to Cohen Milstein Sellers & Toll PLLC, which represents the plaintiffs in the case.

The unanimous decision by a panel of the U.S. Court of Appeals for the Seventh Circuit affirms the decision by Judge Edmond Chang, of the U.S. District Court for the Northern District of Illinois, denying the defendants’ motion to dismiss, and holds that a plan established by a church-affiliated organization, such as Advocate Health Care Network, is not exempt from ERISA under the law’s church plan exemption. 

“We are pleased with the Seventh Circuit Court’s decision, which upholds the rights of Advocate Health Care pension fund participants to a fully funded pension plan and to other federal  protections designed to insure that the money is there when workers need it for their retirement,” said plaintiffs’ co-lead counsel Karen L. Handorf, of Cohen Milstein. “This and the Third Circuit’s ruling in the St. Peter’s Healthcare case send a clear message to these healthcare systems that they cannot get away with denying employees their rightful retirement benefits by claiming that they are church plans exempt from employee retirement fund laws.”

Writing for the panel, Judge Ilana Diamond Rovner highlighted that ERISA is a remedial statute that should be liberally construed in favor of protecting employee benefit plan participants. The Court also expressed concern that employees of religiously-affiliated hospitals in unregulated pension plans could be “left with severely underfunded and uninsured pension plans” if their employer encountered financial trouble.  In a separate concurrence, Judge Michael S. Kanne emphasized that the court’s interpretation of the ERISA church plan exemption “does not compel church-affiliated organizations to operate in a way that violates their religious beliefs.”

The March 17, 2016, Seventh Circuit decision concurs with the recent ruling by the U.S. Court of Appeals for the Third Circuit that affirmed a lower court decision that the pension plan established by St. Peter’s Healthcare System, headquartered in New Jersey, did not qualify as a church plan exempt from ERISA.  The panel also cites the U.S. District Court for the Northern District of California decision that San Francisco-based Dignity Health's pension plan does not qualify for the church plan exemption.  Plaintiffs in both cases are represented by Cohen Milstein and their co-counsel Keller Rohrback, L.L.P.

Advocate Health Care operates 12 hospitals and more than 250 other inpatient and outpatient healthcare facilities, employing 33,000 people throughout northern and central Illinois. 

The plaintiffs, Maria Stapleton, Judith Lukas, Sharon Roberts and Antoine Fox, all past and current employees with vested claims to benefits under the Advocate Health Care retirement plan, filed their class action claims against the health care system in district court on March 17, 2014. They allege that Advocate has not managed the retirement plan in accordance with ERISA standards, and has harmed plan participants by requiring an improperly long five years of service to become fully vested, funding the plan at insufficient levels, placing the plan’s assets in a trust that does not meet statutory requirements, failing to file reports and other notices related to benefits and funding, and other ERISA violations.

Because the Court has determined that the Advocate Health Care Network plan is not an exempt church plan, it must now comply with all of ERISA’s protections which require, among other things, that the plan be fully funded. 

The plaintiffs in Stapleton et al. v. Advocate Health Care Networkare represented by Karen L. Handorf, Michelle C. Yau, and Mary J. Bortscheller of Cohen Milstein Sellers & Toll PLLC, and Lynn Lincoln Sarko, Ron Kilgard, Erin M. Riley, and Matthew M. Gerend of Keller Rohrback L.L.P., and James B. Zouras and Ryan F. Stephan of Stephan Zouras LLP. 

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