Settlement in Dignity Health Church Plan Lawsuit Gets Preliminary Approval

On their third try, the parties in a lawsuit claiming that Dignity Health improperly used the Employee Retirement Income Security Act (ERISA)’s “church plan” exemption to evade ERISA funding and reporting requirements for its defined benefit (DB) plan have been granted preliminary approval of a settlement agreement.

According to the terms of the settlement agreement, Dignity Health will contribute $50 million to the plan for the 2020 plan year and will contribute either another $50 million or the amount of the minimum contribution recommendation calculated by the plan’s actuaries for the 2021 plan year, if it’s greater than $50 million. For calendar years 2022, 2023 and 2024, Dignity Health has agreed to make contributions to the plan in the amount of the minimum contribution recommendation calculated by the plan’s actuaries.

In addition, the settlement calls for a one-time payment to members of what it calls the “vesting subclass” of participants of $950,000 and a one-time payment to members of what it calls the “PEP Plus claimants” of $825,000.

Among other non-monetary settlement terms, Dignity Health has agreed to make available to plan participants and beneficiaries a summary plan description (SPD), a summary annual report (SAR) and pension benefit statements.

Last June, Judge Jon S. Tigar of the U.S. District Court for the Northern District of California denied for the second time preliminary approval of a proposed settlement agreement. Tigar found an underlying conflict between the vesting subclass and the rest of the class and said he could not find that the vesting group’s interests have been adequately protected.

In his order granting preliminary approval of the newly proposed settlement, Tigar noted that the only material changes in the agreement affect the vesting subclass. According to the court document, the changes to the agreement include subclass certification of the vesting subgroup, a $290,000 increase in money paid to the vesting subclass, and the distribution of funds to subclass members proportionate to their previously accrued benefits under the plan. The agreement also establishes eligibility for subsequent plan participation should a vesting subclass member return to employment with Dignity Health.

In the settlement agreement, the Dignity Health defendants deny any and all allegations of wrongdoing made in the complaint.