Recent Developments in Church Plan Litigation · Church Plans: The Basics A Church Plan Is a Type...

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ACI’s 14th National Forum on ERISA Litigation

Ron KilgardKELLER ROHRBACK L.L.P.Phoenix, [email protected]

Recent Developments in Church Plan Litigation

Chicago, March 1-2, 2017

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Outline of Presentation

• Church Plans: The Basics (Slides 3-17)

• Non-Church Church Plans (Slides 18-22)

• The Cases: District Courts (Slides (23-27)

• The Cases: Courts of Appeal (Slides 28-30)

• The Cases: Supreme Court (Slides 31-37)

• Post-Decision Proceedings (Slides 38-43)

• References (Slides 44-52)

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Church Plans: The Basics

A Church Plan Is a Type of “Employee Benefit Plan,” ERISA § 3(3)

• Can Be a Pension Plan or a Welfare Plan

• Definitions in both ERISA and IRC

• ERISA 3(33), IRC 414(e)

• Definitions Nearly Identical

• Original Definition in ERISA in 1974

• Definition Amended in 1980

• Significance: Exempt from Title I

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Only a Few Types of Plans Are Exempt from Title I

• Governmental plans

• Church plans

• Workers’ comp., etc. plans

• Plans outside U.S. for permanent resident aliens

• Unfunded excess benefit plansERISA § 4(b)(1)-(5) (paraphrased)

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Rationale for Exemption:The committee is concerned that the examinations of books and records that may be required in any particular case as part of the careful and responsible administration of the insurance system might be regarded as an unjustified invasion of the confidential relationship that is believed to be appropriate with regard to churches and their religious activities.

S. Rep. 93-383 at 81, reprinted in 1974 U.S.C.C.A.N. 4889, 4965, 1973 WL 12551 (Aug. 21, 1973)

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1974 Definition (ERISA § 3(33)):• Church plan must be “established and

maintained” by a church,

• Employees of church “agencies” could be included in church plan, but:

• Only for pre-existing plans (grandfather provision)

• Only until 1982 (sunset provision)

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1980 Amendment Goals:

• First: To eliminate the grandfather and sunset provisions so that churches could include employees of church agencies in the churches’ plans permanently

• Second: To permit a church plan to be “maintained” by a church pension board

• And various technical changes

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Two Key Provisions Accomplish Goals

• 3(33)(A) and 3(33)(C):

• First, eliminate the grandfather provision and the sunset provision

• So that churches can cover agency employees in their plans

• Second, permit pension boards to maintain church plans

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First Goal

• (A) “The term ‘church plan’ means a plan established and maintained . . . for its employees … by a church or by a convention or association of churches ….”

• Essentially same as 1974 version

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Still on First Goal

• (C)(ii) “The term employee of a church … includes … (II) an employee of an organization, whether a civil law corporation or otherwise, which is controlled by or associated with a church [i.e., a church agency] ….

• (C)(iii) “A church … shall be deemed the employer of any individual included as an employee under clause (ii).”

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These provisions together:

• Deem the church to be the employer of agency employees

• Treat the agency employees as employees of the church

• Permit the church to include agency employees in its plan

• Eliminate grandfather and sunset provisions

• The church must still, as in 1974, establish and maintain the plan

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Church Plans: The Basics Second Goal

(C)(i) “A plan established and maintained for its employees ... by a church . . . includes a plan maintained by an organization … the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, [i.e., a pension board] for the employees of a church ... if such organization is controlled by or associated with a church….”

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Still on Second Goal

(C)(i) again: “A plan established and maintained for its employees ... by a church ... includes a plan maintained by [a pension board] for the employees of a church ....”

• This provision enables a pension board to maintain the church plan.

• Because of statutory language, pension boards often called “principal purpose organizations.”

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What Difference Does it Make?

• Church plans totally exempt from Title I, ERISA § 4(b)(2)

• And Title IV, ERISA § 4021(b)(3)

• And partially exempt from Title II, IRC §§401(a) (“flush”), 410(c)(1)(B), 411(e)(1)(B), 412(3)(2)(D)

• Other exemptions in IRC

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For all plans this means:

• No reporting requirements, ERISA §101 et seq.

• Minimal fiduciary requirements, ERISA § 401 et seq.

• No claims processing requirements, ERISA § 503

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For pension plans this also means:

• No vesting requirements, ERISA § 201 et seq.

• No funding requirements, ERISA § 301 et seq.

• No PBGC insurance, ERISA § 4001 et seq.

For welfare plans this also means:

• No COBRA coverage, IRC § 4980B(d)(3)

• No WHCRA coverage, ERISA § 713

• No accelerated review procedures, ERISA §715, 75 Fed. Reg. 43,330 (7/23/10).

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The central (but not the only) issue in the recent church plan litigation:

• Must a church plan be established by a “church”?

• Or may a non-church, such as a hospital purportedly “controlled by or associated with” a church, establish its own church plan?

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Non-Church Church Plans

1974 Version of Definition

• A church agency could not establish its own church plan.

• Agency employees could participate in church’s plan.

• Religious orders operating hospitals could not establish church plans because they were not churches.

• GCM 37266, 1977 WL 46200.

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1980 Version of Definition• Religious order operating hospitals still not a

church.

• But in 1982 IRS concluded that a plan maintained by a (C)(i) “principal purpose” organization qualifies as a church plan (even if not established by a church).

• An internal committee of the hospital can be the “principal purpose” organization.

• IRS GCM 39,007, 1983 WL 197946 (11/2/1982; 7/1/1983)

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Consequences of 1982 GCM• Hospitals obtained letter rulings from IRS that

their DB plans (which had previously been operated as ERISA-covered) were church plans.

• Until 2011 letter ruling process was ex parte.

• Hospitals typically maintained non-DB plans as ERISA plans.

• Hospitals obtained refunds of PBGC premiums.

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Typical Hospital DB “Church Plan”• Sponsor is non-profit corporation.

• Hospital claims some religious affiliation.

• Plan is administered internally by H.R. Committee

• Plan is underfunded.

• Fund-limited promise.

• Non-ERISA compliant.

• Other plans of hospital usually are ERISA-compliant

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Recent Hospital Church Plan Defaults• St. Anthony Medical Center, Chicago

• Holy Cross Hospital, Chicago

• Hospital Center at Orange

• St. Mary’s Hospital, Passaic

• St. Raphael Hospital, New Haven

• St. Clare’s Hospital, Schenectady

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The Cases: District Courts

2013-14 Cases Filed• Ascension, No. 13-11396, E.D. Mich.

• CHE, No. 13-1645, E.D. Pa.

• Dignity, No. 13-1450, N.D. Cal.

• St. Peter’s, No. 13-2941, D.N.J.

• CHI, No. 13-1249, D. Colo.

• Advocate, No. 14-1873, N.D. Ill.

• St. Anthony, No. 14-4068, N.D. Ill.

• Trinity, No. 14-2237, D. Md.

• Providence, No. 14-1720, W.D. Wash.

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Facts Similar in the Cases• DB plan sponsored by the hospital

• H.R. committee administers plan

• Hospital has PLR on church plan status

• Plan generally underfunded

• Plan not-ERISA compliant

• Plan document typically is “fund-specific”

• Some plans in default

• Hospitals’ non-DB plans are ERISA-compliant

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Plaintiffs’ Claims Similar• Only a church can establish a church plan

• Statutory language• Congressional purpose and context• Legislative history

• Hospitals not churches• Plans not maintained by (C)(i) principal purpose

organizations• Hospitals not controlled by or associated with

churches under ERISA test• Private letter rulings incorrect and entitled to no

deference• Contrary result would violate Establishment Clause

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District Court Decisions Split• Dignity (N.D. Cal. 2013), St. Peter’s (D.N.J. 2014),

Advocate (N.D. Ill. 2014) held only a church can establish a church plan and the plans at issue NOT church plans

• Ascension (E.D. Mich. 2014), CHI (D. Colo. 2014), and Trinity (D. Md. 2015) held a non-church can establish a church plan

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2015-16 Cases Include:• Presence, No. 15-2905, N.D. Ill.• SSM, No. 16-393, S.D. Ill. • Bon Secours, No. 16-1079, D. Md.• Franciscan Alliance, No. 16-4589, N.D. Ill.• OSF, No. 16-467, S.D. Ill.• Mercy CHP, No. 16-518, S.D. Ohio• Mercy SOMH, No. 16-478, W.D. Okla.• St. Joseph’s, No. 2:33-av-1, D.N.J.• Holy Cross, No. 16-5907, N.D. Ill.• Wheaton Franciscan, No. 16-782, N.D. Ill.• HSHS, No. 16-3282, C.D. Ill.

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The Cases: Courts of Appeal

Dignity, St. Peter’s, and Advocate District Court Decisions on Appeal• 28 U.S.C. § 1292(b) appeals

• Each Circuit affirmed unanimously

• St. Peter’s, 810 F.3d 175 (3rd Cir. 2015)

• Advocate, 817 F.3d 517 (7th Cir. 2016)

• Dignity, 830 F.3d 900 (9th Cir. 2016)

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Grounds of Decision:• Plain meaning of statute

• Congressional policy and context

• Canons of construction

• Legislative history

• No constitutional impediment to requiring that church plans be established by churches

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CHI District Court Decision on Appeal• District court held that a non-church could

establish a church plan

• Held on MSJ that the CHI plan was a church plan

• Decision expressly disapproved by St. Peter’s and Advocate (“perfunctory”)

• Now fully briefed in Tenth Circuit

• Stayed pending Supreme Court decision.

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The Cases: Supreme Court

Cert. petitions filed• Advocate = No. 16-74

• St. Peter’s = No. 16-86

• Dignity = No. 16-258

• Cert. granted Dec. 2, 2017

• Cases consolidated

• Merits briefing almost complete

• Argument Mar. 27, 2017

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Petitioners’ Statement of Question Presented• “[W]hether ERISA’s church plan exemption

applies so long as a pension plan is maintained by an otherwise qualifying church affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan.”

Pet. Br. i

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Respondents’ Statement of Question Presented• “Whether a pension plan for employees of a giant

health-care provider is exempt from—and therefore its participants are unprotected by—ERISA, even though there is no genuine dispute that the plan was not ‘established’ by a church.”

Resp. Br. i

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Petitioners’ Main Arguments• Statutory text

• Related provisions

• Statutory history

• Statutory purpose

• Agency deference

• Congressional ratification

• Constitutional avoidancePet. Br. iii

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Respondents’ Main Arguments• Statutory text

• Congressional purpose and context

• Legislative history

• Private letter rulings entitled to no deference

• Constitutional avoidance

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Petitioners’ Amici• Solicitor General

• 12 religious organizations, e.g.:

• Catholic Health Association

• Beckett Fund

• Alliance Defending Freedom

• Christian Legal Society

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Respondents’ Amici• Pension Rights Center

• National Employment Lawyers Association

• AARP

• Americans United for Separation of Church and State/ACLU

• Prof. Daniel Halperin

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Post-Decision Issues

• Decision is expected by the end of the Term

• Remand issues will depend on reasoning in decision

• But two main directions seem likely depending on the decision

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If Courts of Appeal Affirmed• Remaining issues are few

• Is the hospital a church?

• Definition itself distinguishes between a church and an organization “controlled by or associated with” a church

• In litigation many hospitals have conceded they are not churches

• Remedies

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If Courts of Appeal Reversed

• Is H.R. Committee a “principal purpose” organization?

• St. Peter’s and Advocate expressed doubt

• District judge in Dignity did so as well.

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If Courts of Appeal Reversed, cont’d

• Is the hospital “controlled by or associated with a church”

• “[T]hree factors bear primary consideration: (1) whether the religious institution plays an official role in the governance of the organization, (2) whether the organization receives assistance from the religious institution, and (3) whether a denominational requirement exists for any employee or patient/customer of the organization.”

• Cites on next slide

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If Courts of Appeal Reversed, cont’d• Cites for three-part test of control and association

• Lown v. Cont’l Casualty, 238 F.3d 543 (4th Cir. 2001)

• Chronister v. Baptist Health, 442 F. 3d 648 (8th Cir. 2006).

• Walsh v. Mutual of Omaha, 2016 WL 5076197 (E.D. Mo. Sep. 20, 2016).

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If Courts of Appeal Reversed, cont’d• Will more non-profit hospitals claim church plan

status for their DB plans?

• 504 ERISA-compliant DB plans of non-profit hospitals

• 1.9 million employees

• 700,000 in plans that claim a current or historical connection to a church

Resp. Br 50

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References

1974 Version of Statute, P. L. No. 93-406 § 3(33), Section (A) (A) The term "church plan" means

(i) a plan established and maintained for its employees by a church or by a convention or association of churches which is exempt from tax under section 501 of the internal revenue code of 1954, or

(ii) a plan described in subparagraph (C).

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References1974 Version of Statute, Section (B) (B) The term "church plan" (notwithstanding the provisions of subparagraph (A)) does not include a plan--,

(i) which is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513 of the internal revenue code of 1954), or(ii) which is a plan maintained by more than one employer, if one or more of the employers in the plan is not a church (or a convention or association of churches) which is exempt from tax under section 501 of the internal revenue code of 1954.

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References

1974 Version of Statute, Section (C)(C) Notwithstanding the provisions of subparagraph (B)(ii), a plan in existence on January 1, 1974, shall be treated as a "church plan“

if it is established and maintained by a church or convention or association of churches for its employees and employees of one of more agencies of such church (or convention or association) for the employees of such church (or convention or association) and the employees of one or more agencies or such church (or convention or association), and

if such church (or convention or association) and each such agency is exempt from tax under section 501 of the internal revenue code of 1954.

The first sentence of this subparagraph shall not apply to any plan maintained for employees of an agency with respect to which the plan was not maintained on January 1, 1974. The first sentence to this subparagraph shall not apply with respect to any plan for any plan year beginning after December 31, 1982.

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References

1980 Version of Statute, MPPAA §407(a), ERISA 3(33), Section (A)The term 'church plan' means a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of

1954.

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References

1980 Version of Statute, Section (C)(i)(C) For purposes of this paragraph--,(i) A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

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References

1980 Version of Statute, Section (C)(ii)(ii) The term employee of a church or a convention or association of churches includes--,(I) a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, regardless of the source of his compensation;(II) an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of the Internal Revenue Code of 1954 and which is controlled by or associated with a church or a convention or association of churches; and(III) an individual described in clause (v).

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References

1980 Version of Statute, Section (C)(iii)

(iii) A church or a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1954 shall be deemed the employer of any individual included as an employee under clause (ii).

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References

1980 Version of Statute, Section (C)(iv)

(iv) An organization, whether a civil law corporation or otherwise, is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches.

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References• Kaplan v. St. Peter’s Healthcare System, 2014 WL 1284854 (D.N.J.

3/31/2014,) aff ’d, 810 F.3d 175 (3rd Cir. 2015), cert. granted, 137 S. Ct. 536 (2016)

• Stapleton v. Advocate Health Care Network, 76 F.Supp.3d 796 (N.D. Ill. 2015), aff ’d, 817 F.3d 517 (7th Cir. 2016), cert. granted, 137 S. Ct. 536 (2016)

• Rollins v. Dignity Health, 19 F. Supp. 3d 909 (N.D. Cal. 2013), 59 F. Supp. 3d 965 (N.D. Cal. 2014), aff ’d, 830 F.3d 900 (9th Cir. 2016), cert. granted, 137 S. Ct. 536 (2016)

• Medina v. Catholic Health Initiatives, 2014 WL 3408690 (D. Colo. July 9, 2014, R&R), obj. sustained, 2014 4244012 (Aug. 26, 2014), 147 F. Supp. 3d 190 (2015, MSJ granted) appeal docketed No. 16-1005 (10th Cir. 2016)

• Supreme Court briefs of parties and amici available on Scotusblog.com.

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