Stapleton v. Advocate Health Care Network, No. 15-1368 (March 17, 2016) N.D. Ill., E. Div. Affirmed

The Court begins the decision, “The Employee Retirement Income Security Act (ERISA) protects employees from unexpected losses in their retirement plans by setting forth specific safe- guards for those employee plans. The Act, however, exempts church plans from those requirements. This case explores the question that has been brewing in the lower federal courts: whether a plan established by a church-affiliated organization, such as a hospital, is also exempt from ERISA’s reach. We conclude that it is not.” The Third Circuit came to the same conclusion in Kaplan v. St. Peter’s Healthcare Sys., 810 F.3d 175 (3d Cir. 2015).

The plaintiffs are former and current Advocate employees with vested claims to benefits under the Advocate retirement plan; they brought their complaint as a proposed class action on behalf of all beneficiaries of the Advocate plan. The plaintiffs allege that Advocate has not maintained its pension plan according to the standards set forth by ERISA and thus has breached its fiduciary duty and harmed the plan’s participants. The plaintiffs argue in the alternative that if Advocate successfully evades liability under the church plan exemption, that this provision of ERISA is void as an unconstitutional violation of the First Amendment’s prohibition on state establishment of religion. Advocate moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1), arguing that its plan falls within the church plan exemption. The district court denied the defendants’ motion, holding that the plan “is not entitled to ERISA’s church plan exemption as a matter of law” because the statutory definition required a church plan to be established by a church. D. Ct. Order at 20 (R. 64, p.20).

The sole question in this case is whether Advocate’s plan is a church plan as defined by ERISA. To answer this question we turn, as we do in all cases of statutory construction, to the language of the statute. Subsection (33)(A) of ERISA defines a church plan as a “plan established and maintained” by a church. 29 U.S.C. § 1002(33)(A). In short, two separate elements must both be met for the exemption to apply: (1) a church must first create or establish the plan and then (2) maintain the plan. Advocate would clearly lose, as the plan was not established by a church, if the statute stopped there.

Advocate, however, argues that a later part of the statute, subsection (33)(C), enlarges the definition of a church plan. That section states as follows: “(C) For purposes of this paragraph— (i) 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, whether a civil law corporation or otherwise, the principal purpose or function of which is the ad- ministration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.” 29 U.S.C. § 1002(C)(i).

Advocate interprets this language as expanding the definition of church plan so that if an otherwise qualifying organization simply maintains the plan, it has fully satisfied all of subsection (33)(A), even if the plan was not also established by a church. The district court disagreed, finding instead that subsection (33)(C)(i)’s use of the word “includes” means that it “identifies a subset of plans that qualify for the church plan exemption as defined by subsection 33(A)—specifically, plans need not be maintained by a church, and instead may be maintained by a church-affiliated corporation.” D. Ct. Order at 9 (R. 64, p.9).

Advocate’s position—that a plan qualifies as a church plan merely by being maintained by a church-affiliated organization—has a fatal flaw. If a plan could qualify solely on the basis of being maintained by a church-affiliated organization, the “established by a church” requirement of subsection (33)(A) would become meaningless. And we know that this is not so, for subsection (33)(A) is a separate, independent requirement of the statute.

The Court concluded “that Advocate’s benefit plan does not meet the definition of an ERISA church-plan exemption, we need not resolve any of Advocate’s remaining issues. The opinion of the district court is AFFIRMED.”