In the wake of last year’s U.S. Supreme Court ruling that religiously-affiliated hospitals can qualify for exemption from certain federal pension rules, a Chicago federal judge has signed off on a $29 million settlement, designed to end class action litigations against Ascension Health, in which the country’s largest Catholic hospital system was accused of attempting to use the religious exemption improperly to underfund its employees’ retirement plans.

On Jan. 16, U.S. District Judge Gary Feinerman approved the settlement agreement filed by a group of retirees from Ascension and Wheaton Franciscan Healthcare, a hospital system acquired by Ascension.

Under the deal, Ascension agreed to pay $29.5 million into a trust fund, and agreed to not reduce any retiree accrued benefits for at least the next seven years, and provide various annual plan notices, “equitable provisions that mimic certain provisions” of the federal Employee Retirement Income Security Act, according to a memorandum filed by plaintiffs in support of the settlement.

However, the deal would allow Ascension to buy out its full obligation, by contributing $25 million to the trust fund.

Attorneys for the plaintiffs, from the Chicago firm of Cohen Milstein Sellers & Toll PLLC, and Keller Rohrback LLP, of Seattle, will receive attorney fees of approximately $2.2 million, representing just 8.7 percent of the $25 million buyout. The fees would be paid by Ascension in addition to the payments to the trust fund, according to the agreement.

The settlement was the result of mediation sessions begun in early 2017, according to the settlement documents, and had been preliminarily hammered out by last August.

“The $29.5 million guarantee provision of the Settlement Agreement … was crafted to provide Plaintiffs with a type of insurance in that it insures that the Plan will remain sufficiently funded into the future – a type of protection which may not otherwise be available,” the plaintiffs’ attorneys wrote in a memorandum filed with the court.

The litigation was launched in 2016 as part of a wave of similar class actions against religiously-affiliated healthcare organizations, contending the health systems had been improperly claiming religious exemptions under ERISA to avoid contributing the full amount required to their employee retirement funds.

Plaintiff Diann Curtis filed suit in Chicago federal court in April 2016 against Wheaton Franciscan, which had corporate officers in west suburban Wheaton and in Glendale, Wis., and against St. Louis-based Ascension. That lawsuit was followed in June 2016 by a similar action filed by plaintiffs Bruce Bowen and Cheryl Mueller.

Wheaton Franciscan had run hospitals and other health care facilities in Illinois, Wisconsin, Iowa and Colorado since 1983, employing more than 17,000 people. Ascension acquired Wheaton Franciscan’s facilities in Milwaukee and elsewhere in southeastern Wisconsin in March 2016, assuming control of the pension plans for those employees.

Ascension operates about 2,500 medical facilities, including 142 hospitals, employing about 160,000 people, according to the lawsuit. In Illinois, Ascension operates the Alexian Brothers Health System in Chicago’s northwest suburbs.

The courts consolidated the two cases later in 2016. But the cases then were placed on hold in January 2017, as the U.S. Supreme Court agreed to take up the case of Stapleton v. Advocate Health Care Network, a case addressing the legal question at the core of the Ascension lawsuits.

In June 2017, the Supreme Court came down in favor of Advocate, a religiously-affiliated healthcare system, finding such organizations can claim the religious exemption under ERISA, even if they are not directly “controlled by or associated with” a church, overturning appellate decisions in three federal circuits.

However, negotiations between the parties in the Ascension litigation had begun prior to arguments in the Advocate case before the Supreme Court, and the settlement deal was ultimately announced a few months later.

Wheaton Franciscan was represented in the matter by attorneys with the firms of Proskauer Rose LLP, of Chicago and New Orleans, and Holifield Janich Rachal & Associates PLLC, of New Orleans.

  

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