Summary of the Lawsuit

Plaintiffs allege that OSF HealthCare System (“OSF”), a non-profit healthcare corporation based in Illinois, violated numerous provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), a federal law regulating employee benefits, by improperly claiming that two of its defined benefit pension plans, The Sisters of the Third Order of St. Francis Employees Pension Plan and the Retirement Plan for Employees of Saint Anthony’s Health Center (the “OSF Plans”), are “church plans,” which are statutorily exempt from ERISA. 29 U.S.C. § 1003(b)(2). OSF claims the right to use the church plan exemption for the OSF Plans and argues that since church plans are statutorily exempt from ERISA, OSF does not need to comply with ERISA rules governing retirement plans.

The case name is: Smith v. OSF HealthCare System, United States District Court for the Southern District of Illinois, Case No. 16-467

Summary of Claims

The operative Complaint alleges that the OSF Plans are not church plans, exempt from ERISA’s protections, and as a result of claiming the church plan exemption, the Plans do not comply with many of the protections afforded to plan participants under ERISA. As a result, Plaintiffs allege that OSF underfunded the OSF Plans; failed to furnish Plaintiffs with ERISA-required notices, including notices regarding the underfunding of the OSF Plans; failed to create a proper trust under ERISA and failed to obtain pension insurance from the Pension Benefit Guaranty Corporation (“PBGC”).OSF claims they are entitled to claim the church plan exemption for the Plans.

Under ERISA:

a plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

29 U.S.C. § 1002(33)(C)(i). The central issue in the operative Complaint is what qualifies as a principal purpose organization and what it means to “maintain” or “administer” an employee benefit plan. Furthermore, Plaintiffs allege that if the court finds the statute exempting church plans applicable to the OSF Plans, the statute is, to that extent,  unconstitutional.

The Class

This action was brought on behalf of the following persons: All vested or non-vested participants of the OSF Plans (and their beneficiaries) as of the date of the filing of the initial Complaint (April 27, 2016).

Case Status

Judge Staci M. Yandle granted Defendants’ motion for summary judgment on September 28, 2018. Plaintiffs appealed the district court’s decision and on August 13, 2019, the United States Court of Appeals for the Seventh Circuit vacated the district court’s judgment and remanded the case back to the district court for further proceedings. A Joint Notice of Settlement was filed with the court on July 30, 2020, and Plaintiffs Unopposed Motion for Preliminary Approval and Memorandum in Support was filed on September 22, 2020 and was granted on October 7, 2020.

The Settlement Agreement

The Settlement calls for a $25 million cash contribution from OSF, and other non-monetary equitable relief. The requested award for attorneys’ fees, expenses and incentive awards for the Named Plaintiffs (“Fee Award”) will be separately paid by OSF, and cannot exceed $1.75 million. OSF will make payment to Class Counsel pursuant to the Fee Award granted by the Court within thirty (30) days after the Court’s entry of a Final Approval Order. The first $5 million installment of the Settlement Payment will be put into the Master Trust in fiscal year 2021; the cash payments for each year can be made in installments or in a lump sum. OSF will continue to make cash contributions of $5 million per year through fiscal year 2025, although it can end earlier, as OSFs’ cash contribution requirement ends once the amount deposited into the Master Trust pursuant to this Settlement reaches $25 million.

The governing provisions are set forth in the Settlement Agreement, which may be obtained here.