Today, May 9, 2014, the court in Overall v. Ascension Health dismissed the plaintiff’s claims seeking to find that the pension plans sponsored by defendants are not church plans, and thus subject to ERISA. Instead, the court agreed with the defendants and the long time IRS interpretation of the church plan exemption and ruled as a matter of law that the plans in question qualify for the church plan exemption from ERISA.
The lengthy decision can be boiled down to this passage:
In Dignity Health and Saint Peters, the district courts interpreted section (A) as a gatekeeper of section (C). That is, these courts concluded that section (A) sets the standard–only a church can establish a church plan– and section (C) only describes how a plan under section (A) can be maintained. The problem with this interpretation is that section (C) uses the word “includes” not “subject to.” Section (C) says that “A plan established and maintained . . . by a church includes a plan [meeting the requirements of section (C)(I]. As Ascension puts it “under the rules of grammar and logic, A is not a ‘gatekeeper’ to C; rather if A is exempt and A includes C, then C is also exempt.” (Doc. 71 at p. 2). This is how the Court interprets section (C). In other words, a church plan may include a plan that meets the requirements of section (C). Section (C) requires that the plan maintained by an organization that is either (1) controlled by or (2) associated with a church or convention of churches. To find otherwise would render section (C) meaningless.
As referenced, this decision by the court in the Eastern District of Michigan came to the opposite conclusion of previous decisions in the Northern District of California in Rollins v. Dignity Health (Court Finds Plan Sponsored by Catholic Hospital is NOT a Church Plan) and the District of New Jersey in Kaplan v. Saint Peter’s Healthcare System (Court Finds St. Peter’s Pension Plan is NOT a Church Plan & A New Case is Filed in Chicago).
Interestingly, the court here found that the use of the phrase “includes” rather than “subject to” made the difference in the court’s interpretation that Section (A) was not a “gatekeeper” to Section (C). Notably, the court did not directly address the fact that the word “established” is missing from the second part of Section (C), which was so important to the previous two court’s decisions.
After concluding that the long time interpretation by the IRS is in fact the proper test (i.e. a plan qualifies for the “church plan” exemption if the organization maintaining it is either controlled by or associated with a church), the court found that the plans involved met the test.
Additionally, the court dismissed the plaintiffs’ constitutional argument that to the extent the statute is interpreted to permit organizations associated with a church to claim church plan status, it violates the First Amendment’s Establishment Clause. It agreed with defendants’ argument that the plaintiff failed to allege that she suffered any injury-in-fact as to her constitutional claim and therefore does not have standing to pursue it. Thus, the case was dismissed in its entirety.
It is not surprising that different courts have come to different conclusions as to the proper interpretation of the church plan exemption found in ERISA. We’ve guessed since these cases were filed, that the “final” answer, if there is one, will end up coming from the circuit courts, if not the US Supeme Court.
In what appears to this blog as a highly unusual move and in probable recognition of the hotly contested interpretation, the judge deciding the case included an extra section of the decision entitled CODA that appeared to explain in non-judicial terms why the court was required to rule the way that it did (see here for the definition of CODA):
The Court recognizes the considerable number of people, like plaintiff, are employed in the health care industry and not in religious related or directed duties. However, the pension plans in which they are participants are church managed plans. As such, they are exempt from ERISA’s coverage and protections. This is so because the health care entity with whom they are employed is in fact controlled by and associated with a church. In this case, Ascension Health’s managerial system has a direct line to the Roman Catholic Church in the Vatican.
While plaintiff may not have the benefit of ERISA’s protections, the pension plans are [sic - assuming the meant to include the word "not"] wholly unregulated. They are governed by state law. See Cassidy v. Akzo Nobel Salt, Inc., 308 F.3d 613, 615 (6th Cir. 2002) (“Interpreting a non-ERISA contract claim requires federal courts to look only to state law principles . . .” (citing Erie R.R. v.
Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938))).
The church exemption is a congressional choice of historic proportion. And while it may appear to be an irrational distinction, it is a distinction mandated by law.