A Retirement Plan Established by a Church-Affiliated Organization is not an ERISA-Exempt Church Plan (at least in the 9th, 3rd and 7th Circuits)

The 9th Circuit Court of Appeals recently held that, to qualify for the church plan exception to the requirements of the Employee Retirement Income Security Act (ERISA), a church plan (i) must be established by a church or by a convention or association of churches and (ii) must be maintained either by a church or by a church-controlled or church-affiliated organization whose principal purpose or function is to provide benefits to church employees.

The specific holding in in Rollins v. Dignity Health, 2016 WL 3997259 (9th Cir. 2016) was that Dignity Health’s pension plan was subject to the requirements of ERISA and did not qualify for ERISA’s church-plan exemption because it was not originally established by a church, even if it was maintained by a “principal purpose” organization. The 3rd and 7th circuits have reached the same conclusion when confronted with this question. See Kaplan v. Saint Peter’s Healthcare Sys., 810 F.3d 175, 180–81 (3d Cir. 2015); Stapleton v. Advocate Health Care Network, 817 F.3d 517, 523–27 (7th Cir. 2016).

Background

  • 29 U.S.C. § 1003(b)(2) provides that a church plan is exempt from ERISA.
  • 29 U.S.C. § 1002(33)(A) provides that in order to qualify for the church-plan exemption, a plan must be both established and maintained by a church.
  • 29 U.S.C. § 1002(33)(C)(i) provides that a plan established and maintained by a church “includes” a plan maintained by a principal-purpose organization.

The 9th Circuit reasoned that “there are two possible readings of subparagraph (C)(i). First, the subparagraph can be read to mean that a plan need only be maintained by a principal-purpose organization to qualify for the church-plan exemption. Under this reading, a plan maintained by a principal-purpose organization qualifies for the church-plan exemption even if it was established by an organization other than a church. Second, the subparagraph can be read to mean merely that maintenance by a principal purpose organization is the equivalent, for purposes of the exemption, of maintenance by a church. Under this reading, the exemption continues to require that the plan be established by a church.”

The 9th Circuit then held that “the more natural reading of subparagraph (C)(i) is that the phrase preceded by the word “includes” serves only to broaden the definition of organizations that may maintain a church plan. The phrase does not eliminate the requirement that a church plan must be established by a church.”

More

Rollins v. Dignity Health, 2016 WL 3997259 (9th Cir. 2016)

Kaplan v. Saint Peter’s Healthcare Sys., 810 F.3d 175, 180–81 (3d Cir. 2015)

Stapleton v. Advocate Health Care Network, 817 F.3d 517, 523–27 (7th Cir. 2016)

Author: Erwin Kratz

Erwin Kratz practices exclusively in the areas of ERISA and employee benefits law, focusing on tax and regulatory matters relating to qualified and nonqualified deferred compensation and welfare benefits.