No More “Church Plan” ERISA Exemptions for Religiously Affiliated Hospitals?

by Phoebe Ramsey 

There has been a flurry of recent litigation challenging whether church-affiliated hospitals and healthcare systems’ pension plans are covered as “church plans,” and thus exempt from the requirements of the Employee Retirement Income Security Act of 1974 (ERISA), including reporting and disclosure, minimum funding, and fiduciary duty requirements. The plaintiffs in these cases are pension plan beneficiaries challenging their plans’ exempt status on grounds that their employers are non-profit healthcare organizations and not churches. This past December, the United States District Court for the Northern District of California, in Rollins v. Dignity Health, held that a church or an association of churches, of which Dignity Health was not, must establish that its plan is considered a “church plan” as defined by the statute. More information can be found here. The United States District Court for the District of New Jersey followed this reasoning last month in Kaplan v. Saint Peter’s Healthcare System. Similar suits have been filed in Colorado, Michigan, and Pennsylvania, setting up potential circuit splits that could bring the issue up to the Supreme Court for a final ruling on whether pension plans maintained by tax-exempt corporations associated with churches qualify as church plans under ERISA. This would have broad implications for the large number of religiously-affiliated hospitals across the country and the administration of their pension plans.

The decisions focused primarily on the statute’s definition of “church plan” under 29 U.S.C. § 1002(33). Section A defines “church plan” as “a plan established and maintained . . . for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of title 26.” Section (C)(i) states: “A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, . . . if such organization is controlled by or associated with a church or a convention or association of churches. . . .”

In these cases, the defendant health systems argued that their plans qualified as church plans under (C)(i) because the plans were maintained by tax-exempt organizations controlled by or associated with a church. The courts were not persuaded by this interpretation and looked to plain text statutory analysis. In Kaplan, the court determined that section A “is the gatekeeper to the church plan exemption,” and in Rollins, the court concluded that “only a church or a convention or association of churches may establish a church plan.” Simply put, the church or convention or association of churches must first establish the plan under section A for the plan to be considered a “church plan” under ERISA. Religiously-affiliated organizations that establish pension plans do not qualify.

The “church plan” issue is not likely to be finalized for several years as the litigation makes its way up the circuits and possibly the Supreme Court. Still, there is a reason for administrators of religiously affiliated hospitals to consider whether their plans currently comply with ERISA requirements, and whether they are now squarely placed in the line of fire for potential ERISA complaints brought by their employees and their beneficiaries.

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