Nonprofit Pension Plans Not “Church Plans”

     SAN FRANCISCO (CN) — Nonprofit Dignity Health’s pension plans are not “church plans” and must comply with the requirements of the Employee Retirement Income Security Act, an appeals court ruled this week.
     A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit upheld the Northern District of California’s ruling that Dignity Health’s pension plan does not qualify for ERISA’s church plan exemption because it was not established by a church.
     The dispute stems from a class action filed in 2013 by former Dignity Health billing coordinator Starla Rollins, who claimed that Dignity Health’s pension benefits plan was underfunded in violation of ERISA.
     Dignity countered that its plan need not conform to ERISA standards because it was a church plan.
     Enacted in 1974, ERISA establishes minimum funding standards and disclosure obligations for employee benefit plans, among other requirements, to ensure that workers receive the benefits their employers promise.
     But ERISA exempts church plans from its requirements. “Church plan” refers to any “plan established and maintained by its employees by a church or a convention or association of churches.”
     Writing for the panel, U.S. Circuit Judge William Fletcher found that ERISA requires that church plans must be established by an actual church. Contrary to Dignity Health’s contention, Congress did not eliminate that requirement when it amended ERISA in 1983 to allow organizations controlled by or affiliated with a church, with the principal purpose of providing employee benefits, to maintain church plans.
     Dignity Health formed after two Sisters of Mercy congregations in California established nonprofit hospital systems and subsequently merged them to form Catholic Healthcare West. In 1989, the congregations, the hospitals and Catholic Healthcare West merged their pension plans.
     Dignity Health says its pension plans qualify as church plans because an organization associated with a church maintains them.
     “If a church plan may cover employees of a church-associated organization, and a church-associated organization may maintain the plan, Congress had no reason to insist that the church itself must establish the plan,” Dignity Health argued in its brief.
     Fletcher disagreed, finding Dignity Health’s argument to be “based on a misreading of the legislative history.”
     Congress amended ERISA in 1983 to allow employees of church-affiliated organizations like hospitals and schools to continue participating in church pension plans as they had before the statute was enacted to head off higher maintenance costs and other problems that ERISA compliance would have created.
     “The parties’ dispute would have been easily resolved under ERISA’s originally enacted text, which unambiguously provided that a church plan must have been established by a church,” Fletcher wrote in his 26-page opinion, published Tuesday.
     Congress also amended ERISA to qualify pension plans maintained by a church-controlled or affiliated organization, such as a pension board, as church plans. The panel found that the amendment applied only to these types or organizations.
     “There is nothing in the legislative history to suggest that Congress intended, in expanding the definition of eligible employees, to eliminate the requirement that a church plan be established by a church,” Fletcher said. “Nor is there anything in the legislative history to suggest that Congress intended, in broadening the definition of organizations that are authorized to maintain a church plan, to eliminate that same requirement.”
     But Dignity Health argued in its appeal that interpreting ERISA to require that church plans be established by a church violates the First Amendment’s religion clauses. Exempting church-established plans from ERISA but not those established by other religious groups discriminates against certain types of religious groups, Dignity Health said. ERISA authorizes any religious group to establish a church plan, Dignity Health said.
     Fletcher was not convinced. “Dignity Health’s argument can only be understood as an outright constitutional challenge to the church-plan exemption itself, a challenge Dignity Health surely does not intend to advance,” Fletcher said.
     The Ninth Circuit sent the case back to federal court for further proceedings.

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