The U.S. Court of Appeals for the Fifth Circuit has ordered a Mississippi district court judge to reconsider approval of a $150 million settlement deal regarding an underfunded pension plan.

In Jones v. Singing River Health Servs. Found., No. 16-60550, 2017 WL 3178624 (5th Cir. July 27, 2017), Singing River Health Services Foundation (SRHS), a community-owned not-for-profit health system in Jackson County, Mississippi, failed to make contributions to its pension plan between 2009 and 2014, when the hospital board officially froze the plan. The missed contributions exceeded $55 million. When the financially imperiled health system sought to terminate and liquidate the plan, participants initiated a flurry of state and federal lawsuits. The settlement covered three consolidated federal court cases.

As part of the settlement agreement, SRHS must deposit a total of $149,950,000 into the retirement trust under a 35-year schedule. Jackson County, the sole member of SRHS, will pay $13.6 million over eight years to help support the hospital. SHRS will pay attorneys’ fees of $6.45 million by September 2018 and expenses up to $125,000 of all plaintiffs’ counsel.

Over 200 objectors appealed to the Fifth Circuit, bringing up a variety of arguments regarding class certification and the fairness of the settlement. The Fifth Circuit agreed with one point about the fairness of the settlement and sent the case back to the district court for further consideration. The Fifth Circuit took issue with the fact that the “unsecured contractual obligations” to make contributions to the plan would extend over 35 years while class counsel would receive their fees by the end of 2018. “That counsel assured themselves a multimillion-dollar bird in hand, while leaving the class members two in the bush, is disturbing. If they were confident about SRHS’s ability to comply with the settlement, they could have accepted payments over its prescribed duration.” Jones, 2017 WL 3178624, at *9.

The suit also raised the issue of who will be held responsible for struggling governmental pension plans. Governmental plans are exempt from the Employee Retirement Income Security Act of 1974 (ERISA) and insurance through the Pension Benefit Guarantee Corporation. The objectors argued that Jackson County, a non-party released as part of the settlement, should have been held liable because its taxing powers allowed the county to guarantee payment to the pension plan. The objectors further argued that the government’s ability to guarantee pensions through its taxing power was the policy behind the ERISA exemption. The Fifth Circuit disagreed, however, finding the statute allowed taxation to fund the hospital, not its pension, and that the plaintiffs had limited ability to recover from Jackson County based on state tort law.

The plaintiffs also brought claims against the pension plan’s advisors — KPMG, LLP and Transamerica Retirement Solutions Corporations. They were not part of the settlement, and KPMG successfully moved to compel arbitration.