Stapleton v. Advocate Health Care Network, 2016 WL 1055784 (7th Cir. 2016)
The Seventh Circuit has held that a retirement plan established by a church-affiliated network of hospitals and health care locations is not a church plan exempt from ERISA’s requirements because the affiliated church did not establish the plan. In so holding, the court joins the Third Circuit, which recently reached a similar conclusion in another case (see our Checkpoint article). In the case before the Seventh Circuit, current and former employees of the church-affiliated organization that established (and also maintains) the plan claimed that the organization failed to comply with ERISA’s vesting, reporting and disclosure, funding, trust, and fiduciary rules. The organization argued that the plan is exempt from ERISA as a church plan, but the trial court disagreed and held that the plan was not entitled to ERISA’s church plan exemption because the plan had not been established by a church.
In affirming the trial court’s decision, the Seventh Circuit agreed with the Third Circuit’s analysis and concluded that a plain reading of ERISA’s church plan definition—that is, “a plan established and maintained” by a church—limits the entity that can establish an ERISA-exempt church plan to the church itself. The court observed that the statutory language permits a church-established exempt plan to be maintained by a church-affiliated organization but held that this language does not permit a church-affiliated organization to establish an exempt plan. The court then turned to the legislative history to demonstrate that Congress intentionally omitted the word “establish” when it amended the definition of church plan to permit church-affiliated organizations to maintain exempt church plans. And like the Third Circuit, the court was not persuaded by the “long-standing and abundant” IRS private letter rulings approving exempt status to plans established by church-affiliated organizations (including the plan at issue in the case).
EBIA Comment: The Third and Seventh Circuits are the first federal appellate courts to address whether plans established by church-affiliated organizations (such as hospitals) are exempt from ERISA’s reach as church plans, an issue that could ultimately reach the U.S. Supreme Court. Meanwhile, church-affiliated organizations relying on the exemption may wish to review the implications of these decisions with their legal advisors. For more information, see EBIA’s 401(k) Plans manual at Section II.B.3 (“Exemption for Church Plan”); EBIA’s ERISA Compliance manual at Section V.D (“Exemption for Churches”); EBIA’s Self-Insured Health Plans manual at Section III.D.5 (“Plans Sponsored by Religious Organizations”); and EBIA’s Cafeteria Plans manual at Section VIII.D (“Cafeteria Plans Sponsored by Churches”).
Contributing Editors: EBIA Staff.