A flurry of five similar lawsuits filed in the last year challenge the application of ERISA’s church plan exemption to pension plans sponsored by non-profit hospital systems that are affiliated with the Roman Catholic Church. In a nutshell, a “church plan” is a plan that is established and maintained “by a church or by a convention or association of churches which is exempt from tax under section 501 of title 26.” 29 U.S.C. § 1002(33)(A). Church plans are not subject to the reporting, disclosure, participation, vesting and funding requirements that are imposed on most retirement plans (as well as health and welfare plans) under ERISA. For example, a church plan is not required to file a Form 5500 or to provide summary plan descriptions or summaries of material modifications to participants. The church plan exemption is applicable to church health plans and to most church welfare plans, as well as retirement plans.
The plaintiffs in the five similar lawsuits contend that the pension plans sponsored by the non-profit hospital systems are not subject to the church plan exemption under ERISA. The arguments regarding why the plans are not subject to the exemption are relatively similar across the complaints filed. Essentially, the plaintiffs argue that the plans in question are not plans that are “established and maintained” directly by churches as defined by 29 U.S.C. §1002(33)(A) or by “pension boards” as defined by 29 U.S.C. §1002(33)(C)(i). As such, the plaintiffs assert that the defendants violated, inter alia, the minimum funding, notice, plan document, and fiduciary rules of ERISA in their sponsorship and maintenance of defined benefit pension plans.
Last December, Judge Thelton Henderson of the United States District Court for the Northern District of California was the first to consider a motion to dismiss in one of these cases. In Starla Rollins v. Dignity Health, et al., No. 3:13-cv-01450-THE, Judge Henderson denied Dignity Health’s motion to dismiss, finding that Dignity Health’s plan is not a church plan exempt from ERISA. In reaching this conclusion, Judge Henderson held the text of the statute is conclusive and requires that a church plan be actually established by a church for the exemption.
On March 31, 2014, Judge Michael Shipp of the District of New Jersey became the second judge to consider a motion to dismiss in the five recent church plan cases. In Laurence Kaplan v. Saint Peter’s Healthcare System et. al, No. 3:13-cv-02941-MAS-TJB (ECF No. 68), Judge Shipp found the decision in Rollins “persuasive” and agreed that a church plan must actually be established by a church for the exemption. Similarly to Rollins, the opinion by Judge Shipp acknowledges contrary Internal Revenue Service private letter rulings and Department of Labor advisory opinions. However, both opinions noted that such guidance is conclusory and not entitled to deference. Judge Shipp also found unpersuasive Thorkelson v. Publishing House of Evangelical Lutheran Church, 764 F. Supp. 2d 1119 (D. Minn. 2011), in which a district court faced similar facts and arguments, yet reached the opposite result and upheld the application of the church plan exemption.
Along with the prior decision in Rollins, this decision in Kaplan has broad implications for employers who currently rely on the church plan exemption based on the entity’s “association” with a church. If these plans are not church plans, they will be subject to ERISA and face allegations of ERISA violations. With two district courts now rejecting application of the church plan exemption to non-profit hospital systems that are affiliated with the Roman Catholic Church, we await decisions in the three other pending church plan cases.See Marilyn Overall v. Ascension Health et al., No. 2:13-cv-11396-AC-LJM (E.D. Mich.); Albert R. Chavies et al. v. Catholic Health East et al., No. 2:13-cv-01645-CDJ (E.D. Pa.); Janeen Medina v. Catholic Health Initiatives et al., No. 1:13-cv-01249-REB-KLM (D. Colo.).
Given the conflicting authority on this issue, we anticipate that this is not the last word on the scope of ERISA’s church plan exemption.