Dignity Health's $100M class-action settlement is unreasonable, judge says

A California federal judge has refused to approve a deal requiring Dignity Health to pay more than $100 million to settle a class-action lawsuit accusing the San Francisco-based health system of using a religious Employee Income Retirement Security Act exemption it wasn't entitled to, according to Bloomberg Law.

Dignity Health allegedly used the religious exemption to underfund its pension plan by $1.5 billion. Under the proposed settlement, Dignity would add $50 million in retirement plan funding in 2020 and 2021.The settlement also requires Dignity to fund the pension plan until 2024 and prohibits the health system from reducing accrued benefits because of a plan merger or amendment for 10 years.

On Oct. 29, a federal judge in the Northern District of California refused to sign off on the deal because it contains a "kicker" clause. The clause would allow Dignity to keep the difference between the amount of attorneys' fees awarded by the court and the nearly $6.2 million in fees authorized by the settlement.

"Although the fact is not explicitly stated in the Settlement, if the Court awards less than $6.15 million in fees, Defendants keep the amount of the difference and those funds are not distributed to the class," Judge Jon S. Tigar said, according to Bloomberg Law. "The Court concludes that this arrangement, which potentially denies the class money that Defendants were willing to pay in settlement — with no apparent countervailing benefit to the class — renders the Settlement unreasonable."

Though the judge refused to sign off on the deal, he gave the parties an opportunity to revise the agreement and resubmit it for approval.

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