In recent years, we have seen challenges to the exemption for church-sponsored pension plans contained in the Employee Retirement Income Security Act of 1974 (ERISA). A U.S. Supreme Court decision in 2017 (Advocate Health Care Network et al. v. Stapleton et al.) seemed to settle the argument that plans offered by church-affiliated hospitals still qualified for the exemption. However, it now appears that ERISA-qualified government health plans may be under attack.

Shore v. The Charlotte-Mecklenburg Hospital Authority

On November 19, 2018, a group of current and former employees filed a lawsuit against The Charlotte-Mecklenburg Hospital Authority (the “Hospital”). The hospital, doing business as Atrium Health (“Atrium”), managed several employee benefit plans for workers at the Hospital under the ERISA “governmental entity” exemption. The lawsuit alleges that Atrium does not satisfy the requirements for that exemption.

Plaintiffs also allege that Atrium, unfettered by the need to comply with ERISA:

  • ignored ERISA minimum funding requirements,
  • disregarded disclosure requirements, and
  • engaged in ERISA-prohibited financial transactions with related parties that may have led to higher healthcare costs for participants.

Bad behavior aside, the central question is whether Atrium qualifies as a government plan under ERISA.

Government Health Plans Are Different

ERISA does not treat all employee benefit plans the same. Specifically, plans sponsored by governmental agencies and religious institutions are exempt from many ERISA requirements.

Plaintiffs in Shore allege that Atrium fails the test for several reasons, including:

  • “Atrium’s operations are not controlled or overseen by a governmental body;
  • Its employees are not treated as government employees;
  • It does not receive government funding (aside from funding typically provided to hospitals);
  • It does not have taxing authority to fund its operations or raise revenue to fund its plans; and
  • The U.S. government and the State of North Carolina are currently suing it.”

What Does This Mean for ERISA-Qualified Government Health Plans Going Forward?

As the Shore v. The Charlotte-Mecklenburg Hospital Authority case grinds through the court system, it remains to be seen whether ERISA exemptions will be tightened in coming years. It’s possible that other members of the plaintiff’s bar may see merit in attacking ERISA-qualified government health plans, leading to an increased number of court challenges.