Tag Archives: Overall v. Ascension

First Church Plan Case Settles – Overall v. Ascension

On Friday, May 8, 2015, the parties in Overall v. Ascension Health filed a motion seeking approval from the district court to settle the claims brought by the plaintiffs. Of the at least ten “church plan cases” that have been filed challenging the scope of the church plan exemption from ERISA, this case is the first to settle.

Previously, the defendant catholic hospital, Ascension Health, that sponsored the defined benefit plan at issue won in the district court in getting the plaintiffs’ claims dismissed. (there are actually over a dozen plans at issue in the case sponsored by the defendant, but for simplicity’s sake, we will refer to them all as a single plan) The plaintiffs, in short, had claimed that Ascension Health was not itself a church nor associated closely enough with the Roman Catholic Church, to be eligible to sponsor a plan exempt from ERISA. The plaintiffs naturally alleged that the plan’s fiduciaries had failed to meet ERISA’s stringent requirements including allowing the plan to be underfunded by ERISA’s standards by $440 million. After the defendant’s victory in the district court, the plaintiffs appealed to the 6th Circuit and was briefed and waiting for oral arguments to be scheduled and heard. According to the settlement filings, the parties worked with a 6th Circuit mediator over many months and many sessions to settle the claims.

The Settlement

Here is a summary of the terms of the proposed settlement:

  1. The plan will continue to be considered eligible for the church plan exemption and thus exempt from ERISA.
  2. The plaintiffs, in summary, release any and all claims that were or could have been brought with a few exceptions including:
    • “Should the Roman Catholic Church ever disassociate itself from a Plan’s sponsor, as that term is defined in the respective Plan documents, any claim arising under ERISA with respect to
      any event occurring after such action by the Roman Catholic Church”; and
    • “Any claim arising under ERISA with respect to any event occurring after the Internal Revenue Service issues a written ruling that a Plan does not qualify as a Church Plan; the United States Supreme Court holds that Church Plans must be established by a church or a convention or association of churches; or an amendment to ERISA is enacted and becomes effective as a law of the United States specifying that a Church Plan must be established by a church or a convention or association of churches.”
  3. Ascension Health has agreed to contribute $8 million to the plan to be allocated at their discretion.
  4. The plaintiffs’ attorneys will receive up to an additional $2 million in fees and costs determined at the discretion of the district court. This money will not come out of the $8 million above.
  5. Ascension has guaranteed that the plans will pay participants the level of benefits promised through at least June 30, 2022.
  6. Ascension will not terminate the plan unless there is sufficient assets to meet the life annuity and lump sum distribution amounts (as those terms are defined by the relevant Plan), elected by participants in a termination, including any administrative costs.
  7. If the plan is amended, the actuarial value of a participant’s accrued benefit will be no less than it was the day immediately
    prior to the effective date of the amendment.
  8. If there are any mergers, participants will be entitled to the same (or greater) benefits postmerger as they enjoyed before the merger.
  9. The plan documents shall: (a) name a fiduciary; (b) provide a
    procedure for establishing and carrying out the current funding policy and method; (c) describe a procedure for allocation of administration responsibilities; (d) provide a procedure for plan amendments and identifying the persons with authority to make such amendments; (e) specify the basis on which payments are made to and from the Plans; and (f) provide a joint and survivor annuity as currently defined in the plan.
  10. The plan’s summary plan descriptions shall be distributed within four months of the time that the Order approving the settlement becomes Final and nonreviewable. The summary plan descriptions shall: (a) exclude any mention of ERISA or information about ERISA rights; (b) include information about the plan’s Church Plan status, including that the Plans’ benefits are not insured by the Pension Benefit Guaranty Corporation;
    (c) make it clear that the Plans are Church Plans; (d) be in the same form and manner as they are now written; (e) not comply with ERISA § 102; (f) be distributed electronically; however, if a participant sends a written request for an summary plan description, once during any calendar year a summary plan description will be provided in hard copy format at the expense of the participant.
  11. The plan’s annual summaries, pension benefit statements, and/or current benefit values (the content of said communications to be determined solely by Ascension) will be distributed electronically in the format determined by Ascension, or on request, and at the expense of the participant, once during any calendar year paper copies of such documents will be provided.
    • Annual summaries shall include: (a) plan names and EIN; (b) plan years covered by the summary; (c) summary of funding arrangements; (d) summary of Plan’s expenses; (e) information as to the number of participants at year end; (f) summary of the value of net assets at beginning and end of each year; (g) a statement of the Plan’s assets and liabilities; (h) summary information as to the increase and/or decrease in net plan assets annually; (i) summary information as to Plan’s total income; and (j) a statement of assets and liabilities consistent with the Plans’ methodologies, not later than the next October 1 following the end of each plan year.
    • Ascension shall provide pension benefit statements at least every three years, the content, distribution and format to be determined solely by Ascension.
    • Ascension will respond to requests from participants for current benefit values information, as determined solely by Ascension, within thirty (30) days after receiving a written request from a participant. However, Ascension may unilaterally extend its deadlines to respond by an additional thirty (30) days, by providing written notice to the participant.
  12. The plan’s claim review procedures, which shall be included as part of Summary Plan Descriptions, shall state: (a) the identity of the person or entity to whom a claim should be addressed; (b) the time period for filing a claim; (c) the information that must be provided in support of the claim; (d) if a claim is denied, in whole or in part, the person to whom an appeal should be sent; (e) the time period for filing a claim appeal; (f) the information the claimant must provide in support of an appeal; and (g) any statute of limitation period for filing a benefits related claim.

Our Thoughts

Boiled down, this settlement appears to be a significant victory for Ascension Health. The plaintiffs have agreed that they will no longer claim that the plan is subject to ERISA unless there is a major change in the law from either the Supreme Court, Congress, or the IRS. In exchange, Ascension health has agreed to contribute $8 million to the plan, although we have no idea how much, if anything, they were already planning on contributing this year or how that amount compares to previous years.

The settlement filings stress that the plan participants will receive “ERISA like” protections as described above, e.g. guaranteed benefits through 2022 and hefty disclosures. However, without fully analyzing the plan’s financial statements, the plan may already have had enough finding through at least 2022, so it is not clear from the settlement filings how much of a benefit this actually provides.

Notably missing from the settlement is, what we believe was the point of the lawsuits in the first place, any funding standard that closely resembles that found in ERISA. The true underlying issue in these cases is that when a defined benefit plan is not subject to ERISA, there is not an alternate state law scheme that springs up. Instead, there is often nothing at all, as most states have not enacted any pension funding standards for non-government entities (and often not even for government entities, as can be seen in many many news stories across the country of under-funded government pensions).

So how does this settlement affect the other 10 or so cases that are currently pending, including three others that are already at the circuit court level (3rd, 7th, and 9th Circuits)? Not much. All this means is that if in the end the courts (rather than Congress or the IRS) will make the final decision on what exactly is the scope of the church plan exemption, it will not come from the 6th Circuit. However, any change in the law from the Supreme Court, Congress, or the IRS will have an effect on plans claiming the church plan exemption in the 6th Circuit, including the plan at issue in this case because the settlement included such a carve out, as described above.

It also remains to be seen whether this settlement will cause any other settlements before we hear from the 3rd, 7th, or 9th Circuits. If we do, we will make sure to cover them here on the blog.



Court Finds Catholic Hospital Plan is a Church Plan – Overall v. Ascension Health

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.

Our Thoughts

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.


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.