Lawsuit Challenges Health Care Organization’s Governmental Plan Status

A lawsuit claims Atrium Health does not meet the definition of governmental entity under ERISA, so its retirement plans do not fall under ERISA's governmental plans exemption.

A lawsuit has been filed claiming Atrium Health, formerly known as Carolinas Healthcare System, is in violation of the Employee Retirement Income Security Act (ERISA) because it falsely claims to be a governmental entity and as such its retirement plans are exempt from ERISA.

PLANADVISER reached out to Atrium, but has not received comment.

According to the complaint, Atrium established and maintains at least three employee benefit plans—the Pension Plan of the Charlotte-Mecklenburg Hospital Authority, the Carolinas HealthCare System 401(k) Matched Savings Plan, and the Carolinas HealthCare System LiveWELL Health Plan. “None of these Plans comply with ERISA because Atrium erroneously claims that Atrium is a ‘governmental entity,’” the complaint states.

The lawsuit alleges that Atrium’s claim to fall under ERISA’s governmental plan exemption puts the retirement and health benefits of more than 65,000 employees in jeopardy. Atrium’s pension plan, for example, is dramatically underfunded—by the end of 2017, its unfunded liability was $379 million—and the plan has unlawfully denied participants their entire accrued pension benefits. The complaint says participants in the 401(k) plan receive limited information about the performance and expenses related to their investments, impeding their ability to make decisions about their retirement savings.

In addition, the lawsuit says Atrium outsources the operation of its employee health plan to MedCost Benefits Services LLC, a subsidiary company in which Atrium holds a 50% stake. As a result, Atrium’s health care plan can charge significantly more than alternate networks, despite demonstrating no improvement in quality of care or services, allowing Atrium to pocket a portion of these profits, the complaint alleges.

However, according to the complaint, Atrium has never satisfied the Federal law definition of a government of a state, a government of a political subdivision, or an agency or instrumentality of such and, therefore, the plans do not qualify as ERISA-exempt governmental plans. Atrium’s plans were not established by a governmental entity, and the plans are not maintained by any governmental entity.

The lawsuit goes on to say that Atrium’s governing body—the Board of Atrium Commissioners—is not controlled by any state or political subdivision thereof, and Atrium’s daily operations are not controlled or overseen by officials of any state or political subdivision thereof. Atrium’s Board of Commissioners are not publicly nominated or elected—incoming Atrium Commissioners are nominated by the Atrium Commissioners in a self-perpetuating cycle.

In addition, the complaint states that Atrium’s employees are not treated in the same manner as government employees of any state or employees of any political subdivision thereof. For instance, Atrium employees are not entitled to civil service protections; are not subject to any state personnel act, which provides a system of personnel administration for state and local government employees; do not have their salaries publicly available, compared to the salaries of state and local government employees; and are paid salaries from Atrium’s revenue, not from any state funds or county funds collected from a taxpayer.

Further, no state nor any political subdivision of a state has fiscal responsibility for any debts or liabilities of Atrium. No state or political subdivision thereof provides any funding to Atrium, including any funding for Atrium’s employee benefit plans. Atrium is not funded through tax revenues or other public sources, and Atrium does not have the authority to levy taxes on any state residents or residents of any political subdivision to fund its operations or to raise revenue to fund its plans.

The complaint states that Atrium is a nonprofit health care conglomerate that competes with other nonprofit health care conglomerates in its commercial health care activities. The plaintiffs seek an order requiring Atrium to bring its plans into compliance with ERISA and afford the proposed class all the protections of ERISA.