Court Decision Leaves Open Question of Responsibility for Government Plans

In addition, the 5th Circuit found a settlement agreement between Singing River Health System and its current and former employees was unfair, as there was no guarantee of future payments.

By Rebecca Moore | August 09, 2017
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In the ongoing saga regarding the termination of the Mississippi-based Singing River Health System’s defined benefit (DB) plan, an appellate court has determined it was proper for a district court to release Jackson County, Mississippi, the owner of the health system, from any further litigation.

The release from litigation was part of a settlement agreement between Singing River Health System (SRHS) and its current and former employees. Objectors to the settlement agreement argue that Jackson County has a continuing duty to cover any shortfall in the plan and guarantee payment of the pension to retirees under the Mississippi Code, which states in part: “The board of supervisors acting for a county . . . are hereby authorized and empowered to levy ad valorem taxes on all the taxable property of such counties . . . for the purposes of raising funds for the maintenance and operation of hospitals.”

Objectors also note that one of the reasons for the plan’s exemption from the Employee Retirement Income Security Act (ERISA), as the retirement plan of a government entity, is that government entities can fulfill their obligations through their taxing power. They also argue that releasing Jackson County provides a “judicially created” blueprint for other government entities to default on their retiree obligations and escape liability.

However, the 5th U.S. Circuit Court of Appeals found that the district court rejected these arguments for good legal reasons, noting that no statute cited by the objectors requires the County to levy taxes to fund hospital pensions; it only provides that the county is authorized to do so. “Neither Objectors nor this court has found definitive legal authority holding a Mississippi county responsible for the debts of its ‘independent’ entities,” the court’s opinion says.

In addition, the appellate court cited a 2nd U.S. Circuit Court of Appeals decision, which says a court may approve a class action settlement that releases non-parties if “the claims against the non-party being released were based on the same underlying factual predicate as the claims asserted against the parties to the action being settled.” In the settlement agreement, Jackson County agreed to make a $13.6 million contribution to SRHS for the stated purpose of assisting with indigent care and to prevent bond default, in exchange for a release of liability for claims that the district court found to have little support or be limited by statute. “Whatever liability Jackson County may have had, or however much more it could have contributed to benefit the class than what amounts to approximately 22% of the Plan’s liability for missed contributions from 2009-14, the Objectors have not demonstrated that this release renders the Settlement Agreement inadequate,” the 5th Circuit says in its opinion.

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