Federal Court Reconsiders Application of ERISA to Church-Affiliated Plan

Following the US Supreme Court’s lead, a trial court has changed its view as to whether a church-affiliated hospital’s retirement plan qualifies as a “church plan” under ERISA.

Saint Peter’s Healthcare System, Inc. (Saint Peter’s) is a Roman Catholic Church-affiliated medical provider network headquartered in New Jersey. In May 2013, former employee Laurence Kaplan challenged Saint Peter’s claim to ERISA’s church plan exemption and alleged multiple statutory violations, including insufficient documentation and underfunding of the plan by more than $70 million. Notably, shortly after Kaplan filed suit, the IRS affirmed Saint Peter’s plan’s status as a church plan.

Notwithstanding the IRS determination, the trial court concluded that the church plan exemption (employee benefit plans “established and maintained” by churches) did not apply to Saint Peter’s plan. ERISA’s church plan exemption only extends to plans maintained by organizations controlled by or associated with churches with a principal purpose to administer benefits for employees of churches and/or church-affiliated nonprofit entities (“principal-purpose organizations”). In the trial court’s view, since Saint Peter’s established the plan and Saint Peter’s was not a church, the plan could not qualify as a “church plan.”

The Third Circuit affirmed the trial court’s ruling, but the Supreme Court offered a different take on the relevant statutory language when it reviewed this case together with two similar cases from the Seventh and Ninth Circuits in 2017. In the Supreme Court’s view, ERISA’s church plan exemption does not require that a plan maintained by a principal-purpose organization must have also been established by a church to qualify for the exemption. Rather, if a principal-purpose organization maintains a plan, the plan qualifies as a “church plan” for purposes of ERISA, regardless of who established it.

When the trial court reconsidered the case, it applied a three-step analysis developed by the Tenth Circuit after the Supreme Court’s ruling:

First, was the employer plan sponsor associated with a church?

Second, was the plan maintained by a principal-purpose organization?

Third, was the principal-purpose organization associated with a church?

In its analysis, the court found plenty of ties between the hospital and the Roman Catholic Church (e.g., Saint Peter’s was included in the church’s “Official Catholic Directory”) to establish an association with a church (Step One); that the plan’s administrative committee had overall responsibility for plan oversight, including final authority over claims and responsibility for assets and investments (Step Two); and that the committee was a subpart of the church-affiliated hospital and operated under the supervision of the bishop of the diocese that owned the hospital (Step Three). The court therefore determined that Saint Peter’s plan qualified as a “church plan” under ERISA.

Laurence Kaplan v. Saint Peter’s Healthcare System »