Illinois District Court Holds That a Plan Maintained by a Religiously Affiliated Organization Is Not a Church Plan

January 22, 2015

Author: Edna S. Kersting

The United States District Court for the Northern District of Illinois recently had the opportunity to weigh in on the issue of whether a religiously affiliated employer was exempt from federal regulation of its employee benefits plans based on a statutory exemption created for churches under the Employee Income Retirement Act of 1974 (ERISA). Following Rollins v. Dignity Health, 19 F. Supp.3d 909 (N.D. Cal. 2013) and Kaplan v. Saint Peter’s Healthcare Sys., No. 13 CV 2941, D. N.J. Sept. 19, 2014, the District Court in the matter of Stapleton v. Advocate Health Care Network and Subsidiaries, No. 14 C 01873 (N.D. Ill. Dec. 31, 2014), interpreted 29 U.S.C. sections 1002(33)(A) and (C)(i) to exclude benefit plans established and maintained by a religiously affiliated organization from the church plan exemption.

Factual and Procedural Background
In Stapleton, the four plaintiffs were former and current employees of defendant Advocate Health Care with vested claims to benefits under a noncontributory, defined benefit pension plan, covering substantially all of Advocate Health Care’s employees. Based on the plaintiffs’ complaint, Advocate Health Care is affiliated with the United Church of Christ and the Evangelical Lutheran Church of America; however, it is neither owned nor financially supported by either church. The plaintiffs alleged that Advocate Health Care unlawfully operated the plan outside the scope of ERISA, breaching its fiduciary duties and harming the plan’s participants by, among other things, failing to file required reports and notices related to benefits and funding as well as insufficiently funding the plan and placing the assets in a trust that violated statutory requirements. Alternatively, the plaintiffs alleged that even if Advocate Health Care could evade liability under the church plan exemption, this provision of ERISA is void as an unconstitutional violation of the First Amendment's prohibition on state establishment of religion.

Advocate Health Care 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, which Advocate Health Care further asserted is constitutional as a matter of law.

The Court’s Decision
In its motion to dismiss, Advocate Health Care claimed that its benefit plan qualified as a church plan because it was a plan maintained by a religiously affiliated organization, as Advocate Health Care is affiliated with two different churches. The plaintiffs countered by pointing out that to be a church plan – and thus, exempt from ERISA – a plan still had to be established by a church, which Advocate Health Care’s plan was not.

Congress explicitly exempted certain types of plans from the scope of ERISA, including those set up by federal, state, local or tribal governments, under 29 U.S.C. sections 1002(32) and 1003(b)(1), as well as any “church plan,” 29 U.S.C. section 1003(b)(2). As defined by section 1002(33)(A), a church plan is “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 subsection 33(C), a church plan “includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration 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.”

Evaluating this statutory language, the Stapleton court rejected Advocate Health Care’s reading of the exception in subsection 33(C)(i) to expand the definition of church plans to include plans that were not established by a church so long as an otherwise qualifying organization simply maintained the plan. The court reasoned that Advocate Health Care’s reading would render meaningless the requirement that a church plan needed to be established by a church as spelled out in 33(A). Emphasizing the “cardinal” principle of statutory construction that an interpretation is to give effect, if possible, to every clause and word of a statute rather than to emasculate an entire section, the court followed Rollins and Kaplan in holding that if “all that is required for a plan to qualify as a church plan is that it meet the section’s [33(C)’s] requirement that it be maintained by a church-associated organization, then there would be no purpose for section A.” Rollins, 19 F. Supp. 3d at 914 (“This interpretation would reflect a perfect example of an exception swallowing the rule.”). Thus, the “plain language of subsection 33(C)(i) merely adds an alternative means of meeting one of subsection 33(A)'s two elements – and nothing more. See Kaplan, supra, at 7 (“The term ‘includes’ merely provides an alternative to the maintenance requirement but does not eliminate the establishment requirement.”).” As Advocate Health Care’s plan was not established by a church (but by Advocate Health Care), it was not exempt from ERISA and the court denied the motion to dismiss.

Aligning itself with Rollins and Kaplan, the court distinguished the recent decisions of the District of Colorado in Medina v. Catholic Health Initiatives, No. 1:13-cv-01249-REB-KLM  (D. Colo. Aug. 26, 2014), which found that subsection 33(C)(i) could redefine the church plan definition because the “established and maintained” language in subsection 33(A) was a term of art rather than two distinct elements; and of the Eastern District of Michigan in Overall v. Ascension, No. 13-11396 (E.D. Mich.  2014), holding that a plan meets all of subsection 33(A) collectively so long as it meets subsection 33C(i)'s maintenance requirement. 23 F. Supp. 3d 816, 829 (E.D. Mich. 2014).

On January 13, 2015, the court granted Advocate Health Care’s motion for leave to file an interlocutory appeal to the United States Court of Appeals for the Seventh Circuit regarding the denial of its motion to dismiss.

In light of this recent case law in several circuits finding ERISA applicable to benefit plans established and maintained by religiously affiliated organizations, such as hospitals and charities, those employers are well advised to consider reviewing their plan documents and procedures with a view toward compliance with the requirements of the Act. The upcoming Seventh Circuit decision in the Stapleton matter should provide further guidance. In the meantime, however, insurers finding themselves in benefit disputes under plans maintained by religiously affiliated organizations might also want to consider arguing in favor of ERISA applicability to a participant’s claim for benefits, taking advantage of ERISA’s preemption and streamlined dispute resolution.

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