Tag Archives: Medina v. Catholic Health

Court Finds St. Peter’s Pension Plan is NOT a Church Plan & A New Case is Filed in Chicago

by Thomas E. Clark Jr. JD, LLM – April 1, 2014

Yesterday, March 31, 2014, the district court in Kaplan v. Saint Peter’s Healthcare System denied the hospital’s motion to dismiss and found as a matter of law that the hospital’s pension plan is NOT a church plan as defined by ERISA. This is the second substantive decision rejecting 30 years of IRS interpretations after a Northern District of California court found the pension plan at issue in Rollins v. Dignity Health was not a church plan. A copy of the order can be found here.

Additionally, a new case challenging the establishment of a church plan was filed on March 17, 2014 in a federal court in Chicago. We discuss the case at the end of this post.


The court’s summary of the background of the pension plan is worth looking at. The facts alleged are unique among the many similar cases filed last year in that for over 30 years, the pension plan was run as an ERISA plan before filing for an IRS letter ruling (however the uniqueness of the facts played no part in the decision):

SPHS employs over 2,800 people and, in 1974, established the Plan, which is a non-contributory defined benefit pension plan. For over thirty years, the Plan was operated as an ERISA plan—meaning, it complied with ERISA’s requirements regarding funding, reporting, and insurance premiums paid to the Pension Benefit
Guarantee Corporation (“PBGC”)—and represented such to its employees via Plan documents and other written materials. In 2006, during the rise of the nationwide economic downturn, SPHS “concluded that [its Plan] was a church plan” and proceeded to file an application for church-plan status with the Internal Revenue Service (“IRS”).  Meanwhile, SPHS continued to pay insurance premiums to PBGC as an ERISA plan. Notwithstanding its IRS application, SPHS waited until November 2011 to notify its employees of its application for church-plan status. On August 14, 2013, in a private letter ruling, the IRS concluded that SPHS’s Plan is a church plan as defined in ERISA.

The Court’s Interpretation of the Church Plan Exemption

Although both sides put forth multiple levels of arguments depending on how the court would rule (legal arguments, factual arguments, and constitutional arguments), the court started and stopped with the parties’s legal arguments as to exact meaning of the definition of the church plan exemption found in ERISA. As a reminder to those who may not be fully immersed, ERISA provides a few narrow exemptions from its its hundreds of requirements for retirement plans established by churches and by governments. These are known as “church plans” and “governmental plans.”

The positions of the parties were polar opposites. Plaintiffs, wanting the protections found in ERISA, argued that the Saint Peter’s pension plan was not a church plan because the hospital itself is not a church and only plan’s established by a church can be church plans. The defendant hospital argued that “a pension plan established and maintained by a tax exempt corporation controlled by or associated with a church is a church plan.”

The court agreed with the plaintiffs:

the interpretive question here is whether a non-profit entity, purportedly controlled by or associated with a church, may both establish and maintain a church plan. Based on the plain text of the statute, the simple answer is no. Starting with subsection A, it is clear that Congress intended for a church plan—first and foremost—to be established by a church. Once the church establishes the plan, the church must also maintain it. From these two requirements, a church plan is born—hence, “[t]he term ‘church plan’ means a plan established and maintained . . . by a church or by a convention or association of churches . . . .” 29 U.S.C. § 1002(33)(A)

The court then went on to address sub-section C which was added to ERISA in 1980 and has been the source of differing opinions ever since:

Congress has explicitly provided two ways to fall within the church plan exemption: (1) a plan established and maintained by a church, or (2) a plan established by a church and maintained by a tax-exempt organization, the principal purpose or function of which is the administration or funding of the plan, that is either controlled by
or associated with a church. Once a church plan is established in one of these ways, subsection C(ii) delineates what individuals may participate in the church plan as employees of the church. The key to this interpretation is to recognize that subsection A is the gatekeeper to the church plan exemption: although the church plan definition, as defined in subsection A, is expanded by subsection C to include plans maintained by a tax-exempt organization, it nevertheless requires that the plan be established by a church or a convention or association of churches. In other words, if a church does not establish the plan, the inquiry ends there. If, on the other hand, a church establishes the plan, the remaining sections of the church plan definition are triggered.

the Court concludes that Congress was cautious in crafting the definition of a church plan and therefore the definition means what it says—that a church plan must,
from the outset, be established by a church and can be maintained by an organization controlled by or associated with a church.

The court then went on to reject defendants’ expanded interpretation of the definition on multiple grounds worth reviewing in the order, but ultimately stating this:

If the Court were to accept SPHS’s interpretation, any tax-exempt organization can establish its own pension plan, maintain it, and then employ the church plan exemption by purporting to be controlled by or associated with a church. In this context, a tax-exempt organization itself would have to be considered a church under the statute because a church is the only entity allowed to establish a church plan. Defendants’ contention in this regard is unreasonable. The Court cannot conclude that Congress intended to create this slippery slope, especially considering that the point of enacting ERISA was to promote the interest of employees and their beneficiaries. Opening the door to expand the church plan exemption to this extent would place more employees at risk of having insufficient benefits upon retirement. What must be kept in mind is that ERISA is a remedial statute, so any exemptions included thereunder should be construed narrowly. See Rodriguez v. Compass Shipping Co., 451 U.S. 596, 614 n.33 (1981). Defendants’ interpretation would achieve quite the opposite.

In addressing the many contrary IRS rulings, including the one issued for the Saint Peter’s plan, the court found that because the plain text of the statute is clear, it had no reason or need to defer to the opinion of the IRS. “The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.” The court further found in rejecting the IRS letter issued to the plan, “the IRS private letter ruling is conclusory, lacking any statutory analysis, and cannot be used as precedent because the ruling was issued in a non-adversarial setting based on information supplied by SPHS.”

An Update on the Other Cases

As noted above, this is now the second case to explicitly find that only a church can establish a church plan.

Just last week, oral arguments were also heard on the defendants’ motion to dismiss in Chavies v. Catholic Health East. Shortly thereafter, the court denied the motion to dismiss without prejudice and allowed 120 days of discovery on the issue of whether the hospital itself is a church as defined by ERISA and the Internal Revenue Code. The defendants will then be free to file another motion to dismiss or a motion for summary judgment.

The court in Medina v. Catholic Health Initiatives previously ruled in August 2013 that because of the factual nature of the defendants’ motion to dismiss, that it would be converted into a motion for summary judgment. (See our coverage here) Since then, the parties have presumably been engaged in the full discovery process and numerous motions have been filed by the plaintiffs that are currently outstanding.

Finally, the Overall v. Ascension Health case still has a fully briefed motion to dismiss outstanding and is awaiting decision by the court.

 A New Case is Filed in the Northern District of Illinois – Stapleton v. Advocate Health Care Network

On March 17, 2014, a group of plaintiffs seeking to represent the Advocate Health Care Network Pension Plan brought a new lawsuit in the Northern District of Illinois entitled Stapleton v. Advocate Health Care Network. A copy of the complaint can be found here. Similar to the previous five lawsuits brought, the plaintiffs claim the pension plan is not entitled to the church plan exemption. Worth noting, this case differs from the previous five in that it does not involve a hospital alleged to be affiliated with the Catholic Church, but instead the United Church of Christ (“UCC”) and the Evangelical Lutheran Church in America (“ELCA”). Additionally, the plan at issue here is different than the other five in that it is a cash-balance plan, rather than a traditional defined benefit pension plan.