Just how broad is the “church plan” exemption from the Employee Retirement Income Security Act of 1974 (“ERISA”)? Not broad enough to exempt a retirement plan established by church-affiliated hospital, according to the United States Court of Appeals in Stapleton v. Advocate Health Care Network, No. 15-1368, 2016 WL 1055784 (7th Cir. Mar. 17, 2016), in affirming the district court’s decision addressing the issue.
In reaching that conclusion, the Seventh Circuit relied solely on principles of statutory construction in determining the meaning of a “church plan,” as defined by Subsection (33)(A) of ERISA, 29 U.S.C. § 1002(33). The court did not reach constitutional arguments raised by the parties. The court read paragraph (A) of the statutory definition as requiring, for the statutory exemption to apply, that a church (or a convention of association of churches): (1) create or establish a plan and (2) maintain the plan. The court noted that Advocate Health Care Network plainly was not a church, although it was the successor by merger of two church-affiliated health systems—Lutheran General HealthSystem and Evangelical Health Systems—and is presently affiliated with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ.
The court rejected Advocate’s argument that paragraph (C) of subsection 33 enlarged the definition of a church plan, concluding that paragraph (C) only enlarged the statute to permit church-affiliated organizations to “maintain” the plan, but did not erase the predicate requirement under paragraph (A) that a church create or establish the plan. In rejecting Advocate’s argument, the Seventh Circuit adopted the reasoning of the Third Circuit in Kaplan v. St. Peter’s Healthcare System, 810 F.3d 175 (3d Cir. 2015). The court also noted that, although its reliance on the plain meaning of the statutory text made resort to statutory history unnecessary, legislative history supported its narrow interpretation of the church-plan exemption. That Advocate and amici presented numerous examples of Internal Revenue Service private letter rulings stating that church-affiliated hospitals were exempt from ERISA compliance also did not alter the court’s conclusion.
It appears Stapleton and Kaplan may represent the tip of an emerging iceberg of litigation addressing this issue. The Seventh Circuit noted that the Fourth Circuit, in Lown v. Continental Casualty Co., 238 F.3d 543, 547 (4th Cir. 2001), had stated that “a plan established by a corporation associated with a church can still qualify as a church plan ... but did so based solely on the language of subsection (33)(C)(i) without any explanation for the discrepancy with subsection (33)(C)(A) [sic.] requiring that the plan be established by a church.” Stapleton, 2016 WL 1055784, at *7. The court also noted older district court authority from other circuits broadly construing the exemption. Presently, there are at least two district court decisions addressing the issue pending on appeal before other circuits. See Rollins v. Dignity Health, 59 F. Supp. 3d 965 (N.D. Cal. 2014) (concluding church plan exemption did not apply), oral argument held, No. 15-15351 (9th Cir. Feb. 8, 2016); Medina v. Catholic Health Initiatives, --- F. Supp. 3d ---, No. 13-CV-01249-REB-KLM, 2015 WL 8144956 (D. Colo. Dec. 8, 2015) (concluding that church-plan exemption did apply and granting defendants’ motion for summary judgment), appeal docketed, No. 16-1005 (10th Cir. Jan. 7, 2016). The outcomes of these appeals, together with the Third Circuit’s decision in Kaplan and the Seventh Circuit’s decision in Stapleton, may well set the stage for United States Supreme Court review.