8th Circuit: Catholic Hospital Retirement Plan Is Exempt From ERISA

In Sanzone v. Mercy Health, (8th Cir., March 27, 2020), the U.S. 8th Circuit Court of Appeals held that the retirement plan of a Catholic-affiliated hospital qualifies for the "church plan" exemption under ERISA. The court however remanded the case for consideration of whether deprivation of ERISA protections created sufficient injury to confer standing to challenge the church plan exemption as an Establishment Clause violation.  Reuters reports on the decision.

Challenge To Hospital's Reliance on Church Plan Exemption From ERISA Dismissed

In Sheedy v. Adventist Health System Sunbelt Healthcare Corp., 2020 U.S. Dist. LEXIS 2131 (MD FL, Jan. 7,2020), a Florida federal district court dismissed a suit challenging the Seventh Day Adventist Hospital Retirement Plan's reliance on the "church plan" exemption from ERISA, The suit claimed various ERISA violations and violation of the Establishment Clause.  The court dismissed plaintiff's claims on standing and other grounds.

Medical Center's Retirement Plan Is A "Church Plan" Exempt From ERISA

In Boden v. St. Elizabeth Medical Center, Inc., (ED KY, July 25, 2019), a Kentucky federal district court held that the employee retirement plan of a Catholic-affiliated health care provider is exempt from ERISA as a "church plan."  The case was initially stayed pending the Supreme Court's 2017 decision in Advocate Health Care Network v. Stapleton. (See prior posting.)  The case then proceeded under an amended complaint.  The court here, among other things, rejected plaintiffs' contention that the Pension Plan Administrative Committee is not "organization" that "maintained" St. Elizabeth's retirement plan, as required by the statute defining a "church plan." [Thanks to Tom Rutledge for the lead.]

ERISA Pre-Empts Jesuit Order's Claim For Proceeds of Priest's Retirement Account

In Wisconsin Province of the Society of Jesus v. Cassem, (D CT, March 18, 2019), a Connecticut federal district court dismissed breach of contract claims brought by a Jesuit Province against relatives of a deceased Jesuit priest in a suit over the proceeds of the priest's retirement accounts.  Four years before his death, the priest changed the beneficiaries of the accounts from his Jesuit Order to two of his relatives. The court describes the claim at issue:

Plaintiff alleges that the change in beneficiary designation was improper because Fr. Cassem’s vows prevented him from legally acquiring personal property and, therefore, he never owned the Accounts. Plaintiff alleges that “Fr. Cassem’s final vows constitute an enforceable contract among and between the Province and Fr. Cassem, through which Fr. Cassem fully and finally renounced and assigned any and all property then owned or later acquired to the Province.”... The Province argues that because Fr. Cassem was not entitled to retain or direct property for the benefit of any party other than the Province, the original designation of the Province as the beneficiary of the Accounts remains valid and enforceable. 

The court held, however, that plaintiff's contract claim is pre-empted by ERISA, saying in part:

The statute is intended to protect beneficiaries relying on long-accumulated benefits from having to fight challenges to those benefits under disparate standards.

The court rejected the Order's argument that ERISA pre-emption violates its rights under the Religious Freedom Restoration Act, saying in part:

whether or not the statute can apply to cases between private parties, RFRA certainly cannot be used as a procedural mechanism to legitimize a cause of action that contravenes federal law for a plaintiff that is contesting dismissal.... In any event, even if RFRA is applicable in the present case, it does not preclude ERISA preemption because ERISA does not impose a “substantial burden” on Plaintiff’s free exercise of religion.

ERISA Church Plan Exemption Held Constitutional

In Smith v. OSF Healthcare System, (SD IL, Sept. 28, 2018), an Illinois federal district court held that the retirement plan for employees of a healthcare system created by the order of St. Francis qualifies as an exempt "church plan" under ERISA. The court went on to conclude that ERISA's church plan exemption does not violate the Establishment Clause, saying in part:

Rather than entangling the government in the affairs of religious organizations, the church plan exemption avoids the entanglement. In other words, by exempting eligible plans from ERISA requirements, religious organizations and their associated entities are relieved from government mandates about how they conduct their affairs, structure their finances and pursue their missions.

Challenges To Pension Plan's ERISA Exemption Move On

Last year, the U.S. Supreme Court ruled in favor of three large health care systems whose employees had challenged whether their retirement plans qualified as exempt "church pans" under ERISA. (See prior posting.)  Now in one of the cases on remand, a California federal district court has refused to dismiss further challenges to the pension plan's exemption.  In Rollins v. Dignity Health, (ND CA, Sept. 6, 2018), the court held that plaintiffs can move ahead with their claims that the plan is not properly "maintained" as a church plan and that it is not associated with a church.  The court also refused to dismiss state breach of contract and breach of fiduciary duty claims. The court held that it will reach plaintiffs' Establishment Clause challenge to the church plan exemption only if it concludes that the plan qualifies as a church plan.  If the plan's exemption is not ultimately upheld, the plan may be underfunded by as much as $1.2 billion. (See prior posting.)

"Church Plan" Class Action Settled

Last June, the U.S. Supreme Court held that retirement plans of religiously affiliated health care systems qualify as "church plans" exempt from ERISA. (See prior posting.) Now a settlement has been approved by an Illinois federal district court in a class action suit against Ascension, the largest Catholic health care system in the country. The suit was one of many that challenged the availability of the  church plan exemption.  As reported by Cook County Record:

Under the deal, Ascension agreed to pay $29.5 million into a trust fund, and agreed to not reduce any retiree accrued benefits for at least the next seven years, and provide various annual plan notices, “equitable provisions that mimic certain provisions” of the federal Employee Retirement Income Security Act, according to a memorandum filed by plaintiffs in support of the settlement.

However, the deal would allow Ascension to buy out its full obligation, by contributing $25 million to the trust fund.

10th Circuit: ERISA "Church Plan" Exemption Does Not Violate Establishment Clause

In Medina v. Catholic Health Initiatives, (10th Cir., Dec. 19, 2017), the U.S. 10th Circuit Court of Appeals held that Catholic Health Initiatives retirement plan for employees of 92 hospitals qualifies as a "church plan" under ERISA. One of the issues in the case was resolved by the Supreme Court while this appeal was pending.  Resolving the other issues, the 10th Circuit held that CHI's internal benefits committee qualifies as the statutorily required organization associated with a church that maintains a retirement plan.  The Court went on to conclude that the "church plan" exemption does not violate the Establishment Clause.  It held that the exemption meets all three prongs of the Lemon test.  Rejecting the argument that the exemption has the effect of favoring religion, the Court said in part:

Any law of general applicability that exempts religious organizations from its requirements could be said to convey a message that religion is favored. Religion is, after all, being exempted from a rule everyone else has to follow. Such an approach would mean that Congress could never exempt religious organizations from laws that might burden them—even when burdening religious organizations would itself run afoul of the Constitution. But this is common practice. A number of statutes regulate wide swathes of the American economy. And many of these statutes expressly exempt religious organizations from various requirements. 

Supreme Court: Pension Plans of Religiously Affiliated Hospitals Are ERISA "Church Plans"

Giving a major win to religiously affiliated health care systems, the U.S. Supreme Court today in Advocate Health Care Network v. Stapleton, (Sup. Ct., June 5, 2017), held that their retirement plans qualify as exempt "church plans" under ERISA.  Interpreting ambiguous language in the statute, Justice Kagan writing for a unanimous court (Gorsuch, J. not participating) said:

ERISA provides (1) that a “church plan” means a “plan established and maintained . . . by a church” and (2) that a “plan established and maintained . . . by a church” is to “include[] a plan maintained by” a principal-purpose organization. Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a “church plan,” regardless of who established it. We accordingly reverse the judgments of the Courts of Appeals.

Justice Sotomayor filed an opinion saying that she joins the Court's opinion, but has questions whether if Congress were reconsidering the issue today it would grant the church-plan exemption to some of the largest health-care providers in the country, which is the result of the Court's decision.

Puerto Rico Federal District Court Rules Says Catholic School Pension Plan Is Covered By ERISA

In Martinez-Gonzalez v. Catholic Schools of the Archdioceses of San Juan Pension Plan, 2017 U.S. Dist. LEXIS 11903 (D PR, Jan. 27, 2017), a Puerto Rico federal district court adopted a magistrate's recommendation (2017 U.S. Dist. LEXIS 11904, Jan. 9, 2017) and refused to dismiss a suit claiming that the pension plan covering employees of Catholic schools in Puerto Rico does not qualify for the "church plan" exemption in ERISA. The magistrate judge ruled in part:

In light of the plain meaning of the statutory text establishing ERISA's church-plan exemption, this court should find that the better-reasoned view holds that a church plan established by a church-affiliated organization——such as the Superintendence—— [rather than by the Church itself] and maintained by such an organization is not a church plan.

Plaintiffs allege that termination of the plan was in violation of ERISA procedures. This term the U.S. Supreme Court has granted certiorari in cases raising the same legal issue. (See prior posting.)

Supreme Court Grants Cert. In 3 ERISA Church Plan Cases

Today the U.S. Supreme Court granted review in three cases all posing the question of how to interpret the "church plan" exemption in the Employee Retirement Income and Security Act (ERISA). (Order List, Dec. 2, 2016). The cases are Advocate Health Care v. Stapleton, (Docket No. 16-74) (prior posting on 7th Circuit's decision), St. Peter's Health Care v. Kaplan, (Docket No. 16-86) (prior posting on 3rd Circuit's decision), and Dignity Health v. Rollins, (Docket No. 16-258) (prior posting on 9th Circuit's decision).

At issue are the following provisions in 29 USC 1003(b)(2):

(33)(A) The term “church plan” means a plan established and maintained . . . by a church or by a convention or association of churches....

(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 ... [which] is controlled by or associated with a church or a convention or association of churches.

The religiously affiliated health care systems in these cases, rather than the churches they are affiliated with, created the retirement plans for their employees.  In 1983 in a General Counsel Memorandum, the Internal Revenue Service took the position that it is sufficient if the retirement plan was is maintained by a religiously affiliated organization, even if it was initially created by that organization and not the "church" it was affiliated with.  In a series of cases filed around the country, plan beneficiaries have attacked that conclusion and in the cases in which the Court today granted certiorari the plan beneficiaries prevailed.  If the Supreme Court affirms these Circuit Court decisions, retirement plans of various religiously-affiliated organizations will be undefunded in total by billions of dollars.

SCOTUSblog has case pages for each of the cases (case page for Advocate Health Care case with links to case pages for other two cases).

Another Challenge Filed To "Church Plan" Status of Retirement Plan

Another religiously affiliated health care system has been sued by participants in its retirement plan who claim that the plan is not exempt from ERISA as a "church plan."  The complaint (full text) in Sheedy v. Adventist Health System Sunbelt Healthcare Corp., (MD FL, filed 10.28/2016), contends that the plans are underfunded by $134 million. The complaint alleges that:

the Plans do not meet ERISA's requirements for the "church plan" exemption because they were not "established,"and are not "maintained" by a church.

Reporting on the lawsuit, BNA Daily Report for Executives (Nov. 1, 2016) [subscription required] says:

 The 12-count lawsuit against Adventist Health differs from many of its predecessors because it targets several pension plans, including a multiemployer plan covering several Adventist-affiliated entities and a group of frozen plans in which participants are no longer accruing benefits.

The case is also noteworthy for being the first to target a hospital system with ties to the Seventh-Day Adventist Church. The vast majority of the nearly 40 church plan lawsuits have targeted Catholic health-care providers.

Petitions for certiorari in other cases posing the same issue are pending before the U.S. Supreme Court. (See prior posting).

Amici Tell SCOTUS of Importance of ERISA Church Plan Cases

On Aug. 12 and 15 several amicus briefs were filed by religious advocacy groups with the U.S. Supreme Court supporting petitions for certiorari in two cases involving the question of whether ERISA's "church plan" exemption applies to retirement plans of religiously-affiliated healthcare organizations where the plans were not initially established by a church. If the exemption does not apply, the plans will be underfunded by some $3.5 billion.  The cases are Saint Peter’s Healthcare System v. Kaplan (see prior posting) and Advocate Health Care Network v. Stapleton (see prior posting).  BNA Daily Report for Executives (Aug. 18) [subscription required] describes arguments put forward by amici:

Several of the briefs emphasize the huge universe of workers that could be affected by a Supreme Court decision on this topic. According to the Thomas More Society's brief, this issue affects the retirement benefits of “millions of employees across the country who work for nonprofit religious organizations,” including the 750,000 people who work for Catholic hospitals alone.

Further, the groups argue that employees at other organizations, including schools, nursing homes and day care centers, could be affected by a high court ruling. That is because many of these organizations rely on the same statutory exemption in administering their pension plans.

First Amendment rights are a recurring theme in several briefs, which argue that the appellate court decisions against hospital pension plans infringe on religious liberty.... 

Taking a different approach, the Becket Fund also argues that forcing faith-connected hospitals to comply with federal pension rules could threaten their ability to “invest retirement funds morally” and use pension assets to “promote social justice” and “avoid supporting evils.”

In an unexpected twist, the Church Alliance predicts that denying religious exemptions to hospital pension plans could result in “cascading securities law violations” by forcing the plans into the purview of the Investment Company Act of 1940.

Links to all the amicus briefs are available from the SCOTUSblog case pages (case page for Advocate Health Care; case page for Saint Peter’s Healthcare).

Settlement Reached In Two ERISA Church Plan Cases

Bloomberg Law reports that Trinity Health Corp. has agreed to settle two class action lawsuits that claim the health care company's pension plans have been wrongly treated as "Church Plans" exempt from ERISA.  The Class Action Settlement Agreement (full text) still must be approved by the court.  The Agreement which covers Lann v. Trinity Health and Chavies v. Catholic Health East and was filed in Maryland federal district court is summarized by Bloomberg Law:

The settlement requires Trinity Health to contribute $75 million among nine different pension plans within the Trinity Health umbrella, including the plan for Catholic Health East, which merged with Trinity in 2014.... Trinity also agreed to run the pension plans in compliance with certain federal funding requirements and worker protection laws for the next 15 years....

In addition to making three $25 million pension plan contributions, the settlement requires Trinity to pay 219 individual employees $550 each to compensate them for benefits they allegedly lost by taking lump sum pension distributions in 2014.

In a similar vein, Trinity will distribute $1.3 million among the 7,371 former employees who allegedly forfeited certain benefits as a result of the pension plans' vesting requirements, which employees argued violated ERISA.

The settlement allows class counsel to seek up to $8 million in attorneys' fees, expenses and incentive awards for certain plaintiffs.

9th Circuit: Healthcare System's Pension Plan Is Not An Exempt "Church Plan"

The U.S. 9th Circuit Court of Appeals yesterday joined the 3rd and 7th Circuits in interpreting ERISA to cover plans of a number of religiously-affiliated health care systems that previously operated their pension plans on the assumption that they are exempt "church plans."  In Rollins v. Dignity Health, (9th Cir., July 26, 2016), the court concluded that under the language of ERISA, a pension plan is exempt as a church plan only if it was originally established by a church or convention of churches.  The class action complaint filed in 2013 alleges that as of that date Dignity Health's pension plan was underfunded by more than $1.2 billion.

Another "Church Plan" Lawsuit Filed

This week, another lawsuit was filed challenging the right of a religiously-affiliated hospital to rely on the "church plan" exemption from ERISA for its pension plan.  The complaint (full text) in Butler v. Holy Cross Hospital, (ND IL, filed 6/26/2016), alleges that HCH's pension plan violated a number of provisions in ERISA.  When HCH terminated it plan, it was underfunded by $31 million. The complaint alleges in part:

the HCH Plan is not a church plan because HCH is not a church. In fact, even if the law permitted certain non-church entities to establish church plans, the HCH Plan does not meet the various other requirements of a church plan. And if the HCH Plan did meet all the statutory requirements for church plan status, the statute would then be, to the extent, and as applied to HCH, an unconstitutional accommodation under the Establishment Clause of the First Amendment.

7th Circuit: Hospital System's Retirement Plan Is Not An Exempt "Church Plan"

In Stapleton v. Advocate Health Care Network, (7th Cir., March 17, 2016), the U.S. 7th Circuit Court of Appeals joined the 3rd Circuit (see prior posting) in holding that a retirement plan maintained by a church-affiliated hospital system does not qualify for the "church plan" exemption in ERISA if the plan was not initially established by a church.  Interpreting the language of the ERISA exemption, the court said in part:

Church-affiliated organization employees may participate in the same retirement plans as church employees with no further distinctions. Moreover, churches may have outside organizations maintain their plans. The only requirement is that a church must establish the plan in the first place.

Judge Kane filed a concurring opinion emphasizing that the court's interpretation "does not compel church-affiliated organizations to operate in a way that violates their religious beliefs."  This is one of a series of cases filed around the country challenging religiously-affiliated health care systems' reliance on the church plan exemption for their retirement plans.  In this case, plaintiffs charged that the plans failed to meet the vesting, reporting and funding requirements of ERISA. BNA Pension & Benefits Daily reports on the decision and its implications.

Suit Seeks "Church Plan" Designation To Avoid Liability For Bankrupt Pension Plan

In Nashville (TN), an important charitable foundation, the Baptist Healing Trust Fund, last week filed a declaratory judgment action against the U.S. Pension Benefit Guaranty Corporation seeking to avoid potential liability to the PBGC in connection with the now-bankrupt retirement plan of the former Baptist Hospital. According to the complaint (full text) in Baptist Healing Hospital Trust v. Pension Benefit Guaranty Corporation, (MD TN, filed 1/12/2016), the charitable trust-- which received a substantial portion of the proceeds from the sale of Baptist Hospital in 2001-- seeks a ruling that the pension plan was an exempt "church plan" under ERISA so that the PBGC would have no jurisdiction to pursue claims on behalf of the plan. The PGBC is seeking arbitration to recover the $100 million still due to retirees.  The lawsuit also seeks a stay of the arbitration while the court determines the exempt status of the plan. Nashville Public Radio,  Nashville Post, and The Tennessean all report on the lawsuit.

3rd Circuit Holds Catholic Healthcare Retirement Plan Is Not Exempt From ERISA

In a decision that could have major financial implications for religiously affiliated hospitals and healthcare systems, the U.S. 3rd Circuit Court of Appeals yesterday gave the first appellate level victory to employees who, in a series of cases, are claiming that various healthcare system retirement plans do not qualify for the "church plan" exemption from ERISA.  In Kaplan v. St. Peters Healthcare System, (3d Cir., Dec. 29, 2015), the court read the definitional provisions in the statute literally and held that to qualify as a "church plan," the retirement plan, while it may be "maintained" by the religiously-affiliated healthcare system whose employees are covered, must have been "established" by a church or convention or association of churches.  Since St. Peters' plan was created by the healthcare system, and not by the Catholic diocese, it does not qualify.  In so holding, the court refused to give deference to IRS determination that St. Peters' and plans like it are "church plans."  Without the exemption, the plan is subject to the fiduciary and funding requirements of ERISA.  As of 2014, St. Peters Healthcare retirement plan was underfunded by $30 million. Pensions & Investments reports on the decision.

Court Suggests Innovative Interpretation of ERISA "Church Plan" Exemption

A series of cases filed around the country have challenged the treatment of Catholic hospital system pension plans as "church plans" exempt from ERISA. Often challengers are employees who contend that the plans have not been funded in compliance with ERISA or met other ERISA requirements.  The issue has generally been framed as whether it is sufficient that the plans are maintained by the church-affiliated organization that created them, or instead whether the plans must have been established by a "church" for the affiliated medical systems in order to qualify as a "church plan." (See prior posting.)  The statutory language in ERISA is ambiguous.

Now in Medina v. Catholic Health Initiatives, (D CO, Dec. 8, 2015), a Colorado federal district court, while coming down on the side of those courts which have ruled that it is enough that the plan be established and maintained by the affiliated medical system, has also suggested a more direct way to cut the Gordian knot.  It suggests that a Catholic health care system is itself a "church", not just an organization affiliated with a church:

[T]he suggestion that a church is no more than a physical place in which to worship evidences a profound misunderstanding and understatement of the nature of religious devotion and service. At the heart of any church are the religious principles that inform its founding, as animated by the faithful adherents to those principles. Indeed, there would be no need for a house in which to worship if there were no worshipers to gather there. In other words, a church is defined principally by its people – the body of the faithful who profess a similar set of guiding religious principles. Where such people gather to express, in word or deed, the principles and mission of their faith, they are the church.

Under this more resonant definition, the court has little trouble in concluding that CHI is, at the very least, a constituent part of the Catholic Church. 

The court also held that the ERISA church plan exemption does not violate the Establishment Clause. saying "Congress’s expressed purpose in carving out the church plan exemption was precisely to avoid unnecessary entanglement with religion."