Workers Sue Daughters of Charity Health System to Protect Pensions of 8,800 People

[Oct. 20, 2014] SAN FRANCISCONurses and other health care workers at Daughters of Charity Health System filed a class action lawsuit today to protect the pensions of nearly 9,000 employees and retirees, alleging that Daughters improperly evaded federal pension law requirements, allowing it to underfund its pension plan by an estimated $229 million.

The suit alleges that Daughters of Charity improperly classified its pension plan as a “church plan,” which is exempt from the federal law governing and protecting pensions, the Employee Retirement Income Security Act of 1974 (ERISA). Only actual churches can qualify for the “church plan” exemption, and a previous court decision established that similar plans to those created by the Daughters hospital system do not qualify for the exemption.

When Daughters announced Oct. 10 that it was selling the system to Prime Healthcare, a for-profit company headquartered in Ontario, Calif., the risks to the pension plan dramatically increased. Prime has not committed to operate the plan as an ERISA-protected plan, nor has it committed to address the plan’s enormous funding shortfall pursuant to the requirements of ERISA. Prime also has threatened to put the health system into bankruptcy, which would further endanger the pensions of plaintiffs and the other plan participants.

“Daughters of Charity’s decision to sell to Prime puts the future of nearly 9,000 employees and retirees at grave risk,” said SEIU-UHW President Dave Regan. “This lawsuit will ensure that the obligations to people who have devoted their lives to serving the sick and poor at Daughters facilities, and who have done their life planning around receiving a pension, do not have the rug pulled out from under them.”

The suit is backed by the Service Employees International Union – United Healthcare Workers West (SEIU-UHW), which represents thousands of workers at Daughters’ six facilities, and United Nurses Associations of California (UNAC), which represents 800 registered nurses at Daughters’ St. Francis Medical Center in Lynwood, Calif. in Los Angeles County.

“I’ve worked for Daughters of Charity for nearly 27 years,” said Lynn Morris, a Cardiology Staff Technician at St. Francis and one of the plaintiffs in the lawsuit. “I don’t know what I’d do if I lost my pension. I’ve literally been counting on it my entire adult life.”

The ERISA law requires that pension plans have adequate funding to pay their promised benefits. ERISA also imposes strict obligations on the organizations and individuals responsible for plan oversight, requiring them to manage the plan “prudently” and solely in the interest of the participants in the plan – not the interest of the employer. Only qualified “church plans” are exempt from ERISA.

In an August 2014 meeting, Prime’s CEO Prem Reddy repeatedly told SEIU-UHW’s Regan that he intends to seek major concessions from employees in future labor negotiations, and threatened to take the hospitals into bankruptcy if those concessions were not forthcoming.

“It’s clear to us that Prime wants to avoid fully funding the pension plan,” Regan said. “On behalf of 8,800 employees and retirees who would suffer without their promised pensions, we have to make sure their retirement plan is fully funded and protected.”

Catha Worthman, an attorney with the firm of Lewis, Feinberg, Lee, Renaker & Jackson, P.C. of Oakland, Calif., which filed the suit on behalf of the plaintiffs, noted that in 2013 the federal court for the Northern District of California ruled that the Dignity Health Retirement Plan was not a church plan because it was established not by a church but by a hospital system.

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