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When a Church Plan |Is Not a Church Plan

SAN FRANCISCO (CN) - A benefits plan must be established by a church to be considered a church plan exempt from ERISA requirements, a federal judge ruled.

Starla Rollins, a former billing coordinator with Dignity Health, filed a class action last April claiming that Dignity Health's pension benefits plan was underfunded in violation of ERISA, while Dignity contends that its plan is a church plan that need not conform to ERISA standards.

ERISA is shorthand for Employee Retirement Income Security Act, enacted in 1974 to ensure employees receive the benefits they are promised by establishing minimum funding standards and disclosure obligations for employee benefit plans, among other requirements.

ERISA specifically exempts "church plans" from its requirements. The term "church plan" means "a plan established and maintained by its employees by a church or a convention or association of churches."

U.S. District Judge Thelton Henderson denied Dignity Health's motion to dismiss, finding that the healthcare provider does not have statutory authority to establish its own plan and must follow ERISA regulations.

While Dignity Health concedes that it is not a church, it cited section C of a 1980 amendment to the ERISA statute to argue that a plan can qualify as a church plan "regardless of what entity established the plan, so long as the plan is maintained by a tax-exempt non-profit entity 'controlled by or associated with a church or a convention or association of churches.'"

Dignity Health claims that its plan qualifies as a church plan because the healthcare provider is a tax-exempt entity associated with the Roman Catholic Church and the benefits plan is maintained by a sub-committee associated with the church.

But, as the judge points out, a "straightforward reading" of section A of the statute "is that a church plan 'means,' and therefore by definition, must be 'a plan established ... by a church or convention of churches." (Italics in original.)

While noting that section C complicates the issue, Henderson ruled that to uphold section C while ignoring Section A would "reflect a perfect example of an exception swallowing the rule."

According to the ruling, "If, as Dignity argues, all that is required for a plan to qualify as a church plan is that it meet section C's requirement that it be maintained by a church-associated organization, then there would be no purpose for section A, which defines a church plan as one established and maintained by a church."

Henderson also found that Dignity's reading ignores limiting language in section C that requires for an organization to maintain a health plan it must have as its "principal purpose or function ... the administration or funding of a [benefits] plan or program ... for the employees of a church."

"Dignity is a healthcare organization; its mission is to provision of healthcare, not the administration of a benefits plan," the judge noted.

The court also rejected Dignity's argument that a series of IRS private letter rulings supports its position that it qualifies as a church plan, ruling that the rulings apply only to the people or entities who requested them "and are not entitled to judicial deference."

Henderson was similarly not persuaded by other rulings that held the church plan exemption applies to plans established by church-affiliated entities, finding that some other rulings overlooked the limitations in section C while others dealt only with who can maintain or be covered by a plan, not who can start one.

The judge also concluded that a history of the statute supports his reading that the purpose behind section C was "only to permit churches to delegate the administration of their benefits plans to specialized church pension boards without losing church status; it was not to broaden the scope of organizations who could start a plan." (Italics in original)

Rollins is represented by Bruce Rinaldi of Cohen, Milstein, Sellers & Toll law firm in Washington D.C.

Nicole Diller with the firm Morgan, Lewis & Bockius in San Francisco represents Dignity Health.

Neither side immediately responded to a request for comment.

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