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Benefits in the News > By Subject >

Church-sponsored plans


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Oral Argument Today on Definition of 'Church Plan' -- What Issues Are in Play?
"[One] issue that may emerge in the argument is what deference the court should give to rulings by the [IRS] and other agencies on the scope of the exemption. The hospitals' brief argues that if the court deems the statutory language to be ambiguous, it should defer to three decades' worth of agency rulings that such plans are exempt church plans under ERISA." [Advocate Health v. Stapleton, Nos. 16-74, 16-86, 16-258 (oral argument in consolidated cases sched. Mar. 27, 2017)] (Bloomberg BNA)
Can Smaller Plan Sponsors Dream Big? Yes! A Case Study
"Recordkeeping fees were cut in half and a new best-in-class investment menu with a low cost index tier was implemented, along with transparent, direct-billed participant fees to replace revenue sharing (a unique arrangement for a 403(b) plan of this size). How did a plan sponsor such the size of [the Anglican Church in North America] accomplish so much and so quickly?" (Cammack Retirement Group)
Supreme Court to Consider Application of ERISA to Church-Affiliated Pension Plans
"The obvious problem with [the employers'] argument is the odd line it draws between plans that are exempt and those that are not exempt.... [W]hy would Congress insist that pure-church plans be both established and maintained by religious organizations while church-affiliated plans need only be maintained by religious organizations? ... [The employees] suggest that the 1980 amendments should be viewed as limited to relaxing the requirement that they address by providing that church-affiliated plans, like church plans, must be 'established' by the 'church' itself, but that they will retain their exempt status whether they are 'maintained' by the church itself or by the affiliate." [Advocate Health v. Stapleton, Nos. 16-74, 16-86, 16-258 (oral argument in consolidated cases sched. Mar. 27, 2017)] (SCOTUSblog)
Another ERISA Church Plan Class Action Settles
"The parties' settlement provides for a settlement amount of approximately $9 million, which would consist of $4 million paid by Defendants into an escrow account ... as well as approximately $5 million in Plan assets held in trust that have not yet been distributed.... Defendants anticipate that approximately $8.4 million will be available for distribution to Plan participants. After final distribution of the settlement amount the Plan will be fully liquidated and formally terminated." [Butler v. Holy Cross Hospital, No. 16-5907 (N.D. Ill. settlement agreement filed Mar. 1, 2017)] (National Law Review)
University's Links to Catholic Church Not Sufficient to Exempt Its Disability Plan From ERISA
"For many years, most courts (and the DOL and IRS) treated plans maintained by church-affiliated organizations as church plans even if they were not established by a church; the narrower reading embraced by the appellate courts ... is a relatively recent development. In March, the U.S. Supreme Court is scheduled to hear arguments on this issue (in those cases), and a decision is expected before the current term ends in June. While those cases all involve pension plans, health and welfare plans like the disability plan here are likely to be affected by the Court's decision." [Durham v. Prudential Life Ins. Co. of America, No. 16-8202 (C.D. Cal. Feb. 10, 2017)] (Thomson Reuters / EBIA)
Church Plan Cases: Federal Agencies Finally Speak
"The [amicus curiae brief of the U.S. Solicitor General with contributions by counsel at PBGC, DOL, IRS and Treasury] presents four arguments urging the High Court to read ERISA's church plan exemption to apply to employee benefits plans of religiously affiliated employers notwithstanding that the plans initially may not have been established by a church.... [1] 'Natural reading' ... [2] Context, history, and purpose ... [3] Consistent and long term application ... [4] No sound reason for radical re-interpretation." (Jackson Lewis P.C.)
[Opinion] Church Plan Crisis Looming
"Why are these government agencies so anxious to keep these 'church' plans exempt from ERISA? Because they might be the worst funded Defined Benefit plans in the country and ... the only place these church plan liabilities appear is in Schedule D, Part X of the sponsor's 990 form. Without any funding requirement many of these plans may already be in pay-as-you-go mode with massive unfunded liabilities that would stretch the resources of government agencies that could be charged with overseeing their solvency." (Burypensions)
Feds Break Silence, Back Hospitals in Battle Over Church Plan Status
"Five federal agencies have asked the U.S. Supreme Court to rule that religiously affiliated hospitals can run pension plans exempt from federal law ... If the Supreme Court rules that these pension plans are subject to ERISA after being run as ERISA-exempt for years, the agencies charged with pension oversight will need to be on the same page in formulating a response ... This coordinated amicus brief suggests that those conversations already may be underway ... The brief is noteworthy for being a rare example of the DOL supporting an employer in a dispute over workers' pension benefits." (Bloomberg BNA)
Text of Amicus Brief of U.S. to Supreme Court on Definition of Church Plan (PDF)
67 pages. "[T]he agencies responsible for administering ERISA's complex regulatory scheme have consistently concluded that such a plan need not be initially established by a church to qualify as exempt. That longstanding interpretation is correct. [1] The agencies' interpretation is the natural reading of the statutory text.... [2] The context, history, and purpose of the MPPAA amendments reinforce the natural reading of the text.... [3] If there were any doubt about the best interpretation of the church-plan definition, it would be resolved by the position adopted and consistently applied by the IRS, DOL, and PBGC.... [4] Neither respondents nor the courts of appeals identified any sound reason to upset decades of reliance interests by imposing a requirement that a church plan be initially 'established' by a church." [Dignity Health v. Rollins, No. 16-258 (cert. pet. granted Dec. 3, 2016)] (U.S. Department of Labor [DOL]; Pension Benefit Guaranty Corporation [PBGC]; U.S. Department of the Treasury; and U.S. Department of Justice)
Supreme Court to Rule on Church Plan Status, Possibly Affecting Welfare Benefits and DC Plans
"What the Court must determine is whether the exemption applies if a plan is maintained by a (tax exempt) church-affiliated organization or is available only when a church, per se, established the plan.... While the plans at issue in these consolidated cases are defined benefit pension plans, the question of whether ERISA applies is much broader, as it has implications for defined contribution retirement plans, welfare benefit plans, and even for health care continuation obligations under COBRA, which similarly exempts church plans." (Fox Rothschild LLP)
Brief of Hospitals to Supreme Court in Consolidated Church Plan Cases (PDF)
79 pages. "Nothing in the statute requires 'churches' to establish pension plans for affiliated organizations; to the contrary, the text is incompatible with such a requirement.... Nothing in ERISA's history supports such a requirement. And such a requirement would serve no apparent purpose, beyond arbitrarily excluding certain plans maintained by religious organizations. It is entirely unclear what church establishment even means and if it is anything more than an empty formalism." [Advocate Health v. Stapleton, Nos. 16-74, 16-86, 16-258 (on appeal to Supreme Court)] (SCOTUSblog)
Fate of Hospital Pensions Rests with Supreme Court (PDF)
"If the Supreme Court agrees with the hospital workers -- as three appellate courts did -- and finds that an ERISA-exempt church plan must be established by a church, then what? That's where things get tricky. In many cases, the workers have sought court orders requiring the hospitals to make up pension funding shortfalls that average about $325 million. They've also sought statutory penalties for decades worth of alleged ERISA violations." (Keightley & Ashner LLP)
Schenectady Hospital Retirees Wonder Who Will Pay After 'Church Plan' Fails
"The pension plan covering workers at the former St. Clare's Hospital has notified more than 1,100 participants that, based on current projections, it will run out of money to pay their retirement benefits in about another decade.... Three cases involving similar pension situations at religiously-affiliated health care organizations are headed to the U.S. Supreme Court this spring[.]" (The Daily Gazette)
Supreme Court's Docket Includes Church Plan ERISA Exemption Cases (PDF)
"A three-year litigation push involved more than two dozen religiously affiliated hospitals. The lawsuits claim more than 300,000 hospital workers face a pension shortfall of about $4 billion because hospitals have wrongly designated their pension plans as exempt.... The court's decision will affect about 30 pending lawsuits against hospitals with similar pension plans." (Bloomberg Law Pension & Benefits Reporter)
Puerto Rico Catholic School Teachers Win Round in Pension Suit
"The main issue in the case is whether the Catholic schools' pension plan is subject to [ERISA] or exempt from the federal law as a church plan.... [The federal district magistrate judge], in his report and recommendation, relied on three cases by the U.S. court of appeals for the Third, Seventh and Ninth circuits. Those cases, and dozens of others pending in federal courts throughout the U.S., have challenged hospitals that treat their pension plans as church plans. The Puerto Rico lawsuit appears to be the only one that challenges a school system using ERISA's church plan exemption." (Bloomberg BNA)
Looking Back at ERISA Litigation in 2016
"Church plans go to the Supreme Court ... Elite universities get the excessive fee treatment ... The [DOL] fiduciary rule litigation ... 'Stock drop' litigation after Dudenhoeffer ... Continued litigation over 401(k) plans." (Stephen Rosenberg, The Wagner Law Group)
Supreme Court to Hear Church Plan Litigation
"If the Court agrees with the faith-based health systems that qualifying church-affiliated organizations can legitimately maintain and sponsor 'church plans' that are exempt from ERISA, then, depending on how the decision is worded, this could bring an end to the pending cases challenging church plan status.... [If] the Supreme Court disagrees with the faith-based health systems and determines that the underlying church plans must have ultimately been established by a 'church,' a much more time-consuming process will be required for these previously exempt tax-qualified retirement plans to come into ERISA compliance." (McDermott Will & Emery, via Lexology)
Supreme Court Set to Rule on Church Plan Status
"Many of the class-action lawsuits filed in recent years involve plan sponsors that followed ERISA for years but later received private letter rulings from the IRS exempting them from the law as church plans.... Part of the reason behind the flurry of class-action lawsuits in recent years is that until September 2011, plan sponsors did not have to tell participants the IRS had allowed them to leave ERISA protection, and many participants found out the hard way, after plans reduced benefits or ran out of money." (Pensions & Investments)
Religious Exemptions to ERISA: Another Battleground for Employee Benefits Litigation
"On its face, Advocate Health Care Network v. Stapleton and the two other cases it's consolidated with may seem boring -- after all, they're about federal regulations on pension plans for church-affiliated hospitals. But these cases are actually the culmination of a new, vicious fight over the rights of employers that are loosely affiliated with religious institutions, and how they should have to pay retirement benefits to their employees in accordance with federal law." (The Atlantic)
Supreme Court to Decide Whether Certain Nonprofit Pension Plans Can Claim 'Church Plan' Status
"The Supreme Court's decision in these three cases will affect hundreds of thousands of current and former employees of hospitals, social services agencies, educational institutions, and other religiously-affiliated nonprofit organizations whose pension plans were not established by and are not backed by a church ... [U]ntil a change in IRS procedures five years ago, employees were not even told that their plans had applied for 'church plan' status. Some retirees have already lost all or part of the pensions they had earned." (Pension Rights Center)
Supreme Court Grants Certiorari to Decide Meaning of Church Plan Exemption Under ERISA
"The IRS and [DOL] have issued hundreds of rulings since the ERISA amendments in question were adopted in 1980 validating the church plan status of religious organizations. The Solicitor General has yet to take a position on the issue in the Supreme Court, leaving questions whether there might be a shift in governmental policy and administration. Briefing will likely be completed in March 2017, with oral argument to follow, and a decision by the end of the Court's term in June." (Stradley Ronon Stevens & Young, LLP)
Supreme Court to Hear Hospitals' Religious Exemption from ERISA
"The employees in effect accuse the hospital systems of being big businesses posing as church organizations in order to avoid minimum funding and reporting requirements on employee pension plans mandated by [ERISA].... The three hospital systems maintain that their religious affiliation makes them exempt from ERISA. St. Peters is affiliated with the Roman Catholic Church, Dignity is formerly Catholic-affiliated but still operates many Catholic hospitals, and Advocate is affiliated with the Evangelical Lutheran Church in America and United Church of Christ." (Insurance Journal)
Supreme Court Will Review Consolidated 'Church Plan' Cases
On Friday, Dec. 3, the U.S. Supreme Court granted petitions for writs of certiorari in Dignity Health v. Rollins, Advocate Health Care Network v. Stapleton, and Saint Peter's Healthcare System v. Kaplan. The cases are consolidated and a total of one hour is allotted for oral argument. (SCOTUSblog)
When Is an Organization a 'Church' That Sponsors a Retirement Plan?
"[N]othing ever defines just what qualifies as a 'church.' In the 403(b) world, we often refer to them as 'steeple churches,' but that seems just to beg the question as well.... The IRS has made a game try at defining it, informally ... in its Publication 1828.... Note that the [IRS] uses all the facts and circumstances ... in making a determination." (Business of Benefits)
Top Plaintiffs Law Firms Filing ERISA Class Actions
"During 2015 and 2016, court dockets across the nation had an uptick in ERISA lawsuits seeking class action treatment for participants who accuse their plan sponsors and administrators of breaching their fiduciary duties.... This litigation uptick is making large employers rely more on certain boutique and big law firms to defend them. In the same way, it appears participants who want to challenge their plan fiduciaries over how they manage their retirement plans are relying on a small pool of plaintiffs law firms." (Bloomberg BNA)
Church Plan Litigation Hits Adventist Hospital System
"The lawsuit ... claims that Adventist Health System's pension plans are underfunded by a combined $134 million. Like more than three dozen recent suits against Catholic and other religiously affiliated hospitals, this lawsuit attributes the underfunding to Adventist's improper reliance on a religious exemption from [ERISA]." [Sheedy v. Adventist Health Sys. Sunbelt Healthcare Corp., No. 16-1893 (M.D. Fla., complaint filed Oct. 28, 2016] (Bloomberg BNA)
Hospitals Have More at Stake in Church Plan Litigation Than Huge Pension Liabilities
"Two of the three hospitals seeking Supreme Court review -- Advocate Health and Dignity Health -- have issued bonds. While it may be too early to speculate how the Supreme Court would rule if it takes up the cases, a ruling against these hospitals could affect their credit ratings and the bondholders." (Bloomberg BNA)
Watching SCOTUS: ERISA Church Plan Exemption Revisited
"Currently before the Supreme Court are two petitions regarding the thorny legal question of which organizations can qualify for ERISA's Church-plan exemption. If the Supreme Court grants certiorari and follows the recent Third and Seventh Circuit Court decisions, then all Church-affiliated organizations (e.g. church affiliated hospitals, daycares, and adoption agencies) will have to bring their existing plans into compliance with ERISA, likely at a substantial cost both to their bottom line and to their religious mandate." (Seyfarth Shaw LLP)
Supreme Court Pauses Ninth Circuit's Decision in Church Plan Case
"Associate Justice Anthony Kennedy granted Dignity Health a temporary reprieve from complying with [ERISA] until the eight justices decide whether or not to take up their appeal. In July, the Ninth Circuit determined that Dignity Health didn't qualify for a religious exemption from ERISA and its employee pension system couldn't be considered a church plan. Dozens of lawsuits have been filed against faith-based organizations over the issue. The lawsuits target some of the nation's largest health systems." [Dignity Health v. Rollins, No. 16-258 (S.Ct. Sept. 21, 2016)] (Modern Healthcare; registration may be required)
Fix Billion-Dollar Church Plan Standoff, Groups Tell SCOTUS
"In briefs filed with the Supreme Court on Aug. 12 and 15, five religious liberty and health groups are urging the justices to undo these decisions and definitively rule that church-affiliated hospitals can sponsor 'church plans' exempt from [ERISA].... [T]hese lawsuits allege that 247,000-plus hospital employees are facing a $3.5 billion shortfall in their pensions because the hospitals haven't adequately funded the plans. Even more, the lawsuits could trigger 'billions of dollars in penalties' against the hospitals, according to [one] brief." (Bloomberg BNA)
Church Plans Raising Cain Among the Circuits
"The issue comes down to who must establish the plan and whether ERISA authorizes that ability to a nonprofit that is not a church.... Several district court cases have ruled in favor of the health-care companies, allowing them to treat their pension plans as ERISA-exempt church plans ... on the basis that the organizations were administering the plan ... for the employees of a church or a convention or association of churches.... [At] least three district courts ruled in favor of participants ... On appeal, these district courts were affirmed by their respective circuit courts, which elevates the potential impact these cases may have going forward." (Bloomberg BNA)
Trinity Health Settles Church Plan Lawsuit
"Under the terms of the agreement, Trinity will make an annual $25 million contribution to the plans for three years, totaling $75 million. The contributions will be allocated to the plans in the sole discretion of Trinity. In addition, the health care system will pay $550 each to the 219 individuals who elected and received a lump-sum distribution during the lump-sum window period in 2014." (PLANSPONSOR)
Trinity Health Settles 'Church Plan' Pension Suit for $75M
"The settlement requires Trinity Health to contribute $75 million among nine different pension plans within the Trinity Health umbrella, including the plan for Catholic Health East, which merged with Trinity in 2014. While this settlement is less than the $107 million deal Connecticut-based St. Francis Hospital agreed to in May, it dwarfs the $8 million settlement reached by Ascension Health and its workers in a similar case last year." (Bloomberg BNA)
Text of Ninth Circuit Opinion: ERISA Church Plan Exemption Requires that Plan Be Established by Church (PDF)
26 pages. "We conclude that the more natural reading of subparagraph (C)(i) is that the phrase preceded by the word 'includes' serves only to broaden the definition of organizations that may maintain a church plan. The phrase does not eliminate the requirement that a church plan must be established by a church. The other circuit courts that have considered the question agree with this reading." [Rollins v. Dignity Health, No. 15-15351 (9th Cir. July 26, 2016)] (U.S. Court of Appeals for the Ninth Circuit)
Faith-Based Health Systems Ask Supreme Court to Hear 'Church Plan' Cases
"Two faith-based health systems want the U.S. Supreme Court to weigh in on whether their pension plans should be exempt from certain federal protections for workers -- an issue that has spurred dozens of lawsuits across the country in recent months. Advocate Health Care in Illinois and St. Peter's Healthcare System in New Jersey argue that because of their religious affiliations, their employee pension plans should not be subject to [ERISA]." (Pensions & Investments)
Recent Appellate Court Decisions Heighten Concern for Hospitals with 'Church Plans'
"A recent wave of class action lawsuits ... is challenging those church plan designations, even for plans that have received specific approval from the [IRS] or the [DOL].... Two recent appellate court decisions have endorsed these lawsuits and substantially narrowed the applicability of the church plan exception such that many Catholic or other religiously affiliated hospitals may no longer qualify for the church plan exemption." (Morgan Lewis)
Lawsuit Slams Puerto Rico Catholic Schools' Pension Plan
"A new lawsuit accuses those running the pension plan for Catholic school teachers in Puerto Rico's capital city of mismanaging the plan to the point of insolvency and then retroactively claiming an exemption from federal worker protections ... According to the lawsuit, the plan's administrators told participants for years that the plan was funded and federally insured in compliance with [ERISA]. The participants allege that they were informed earlier this year that the insolvent plan was an ERISA-exempt 'church plan' and that it would be terminating, with the plan's remaining assets largely reserved for those participants who were already receiving pensions." (Bloomberg BNA)
Participants Sue Over Church Plan Status for Hospital Pension Fund
"Holy Cross Hospital and Sinai Health Systems, Chicago, are being sued by participants of a terminated defined benefit plan who are challenging its church-plan status.... The lawsuit ... alleges that Holy Cross Hospital transferred plan sponsorship and liabilities to an order of nuns ... the day before completing a merger with Sinai Health System in 2012. At the time, the plan had $31 million in liabilities after Holy Cross stopped making contributions in 2007, according to the lawsuit." (Pensions & Investments)
Recent Court Decisions Impose ERISA Requirements on Plans Established by Church-Related Organizations
"For many years, a number of courts have held that [ERISA's 'church plan' exemption] also applied to plans that were established by organizations that are affiliated with churches, such as schools (think Notre Dame or Georgetown) or hospitals. In two major decisions a couple of months apart, the Third and Seventh Circuits have held that the exemption is not as broad as other courts have concluded. These cases signal a major new area of ERISA litigation." (Begos Brown & Green LLP)
Hospital Settles Church Pension Lawsuit for $107 Million
"In 2015, a proposed class of workers accused Connecticut-based St. Francis Hospital of improperly treating its pension plan as a 'church plan' exempt from federal law, resulting in a pension underfunding of $139 million. According to recently filed court documents, St. Francis has agreed to settle this lawsuit by contributing $107 million to its pension plan over a 10-year period, which corresponds to about $60,000 per plan participant. This settlement amount dwarfs the $8 million settlement reached by Ascension Health and its workers in a similar case last year[.]" (Bloomberg BNA)
Hospital Pensions Hammered by 'Church Plan' Class Actions
"Hospital workers have filed 15 class actions in the past two months challenging multimillion-dollar funding shortfalls in their pension plans.... This litigation effort -- which was spearheaded in 2013 by [two plaintiffs' law firms] -- has hit nearly 20 health-care companies in total, spanning 18 different judicial districts. The workers have scored victories in the U.S. courts of appeals for the Third and Seventh Circuits, with future rulings expected from the Ninth and Tenth Circuits. Recent court filings suggest that one of the targeted hospitals, Illinois-based Advocate Health Care Network, plans to take this fight to the U.S. Supreme Court." (Bloomberg BNA)
[Guidance Overview] Church Plan Clarification Law Presents New Options for Church Plans
"The Coordinated Appropriations Act, P.L. 114-113 ... addresses the controlled group rules, automatic contribution arrangements, section 415 limits on grandfathered 403(b) defined benefit plans, transfers between 403(b) and 401(a) plans, and investing in group trusts. Some provisions will require guidance from the [IRS] to implement. The act is generally effective on or after December 18, 2015 (the enactment date), with the exception of the controlled group rules and the grandfathered 403(b) defined benefit plan limits, which are effective for plan years before, on and after December 18." (Willis Towers Watson)
New Church Pension Plan Lawsuit Makes Seven Filed in Past Month
"Since March 17, lawsuits have targeted two Cincinnati hospitals, St. Elizabeth Medical Center and Mercy Health, and Illinois-based Wheaton Franciscan Services. Maryland-based Bon Secours and Missouri's SSM Health Care Corp. each have been sued twice.... Nearly all of these lawsuits have been filed by two pairs of plaintiffs' law firms, which are increasingly targeting the same hospital defendants." (Bloomberg BNA)
Two Adverse Decisions Against Church Plans Reached at Appellate Court Level
"Both the Third and Seventh Circuits ... found it significant from a plain-meaning interpretation that the phrase 'includes a plan maintained by an organization...for the employees of a church or a convention...' did not articulate that the 'inclusion' also captured a plan 'established' by such organization for the employees of the church.... Both courts determined that although the underlying health care system was affiliated with a church, the health care system itself had 'established' the retirement plan, not the underlying church. Therefore, the retirement plans failed to meet the requisite church-plan definition." (McDermott Will & Emery)
Observations on the Supplementary Briefings in Zubik v. Burwell
"The government's position in [Zubik v. Burwell] just got weirder. It is increasingly difficult to understand why the government has been litigating so long and so hard to force the Little Sisters and other religious organizations to perform acts they regard as contrary to their faith, when it now admits (however grudgingly) that it all was unnecessary.... What did the government do in its supplemental brief? It hemmed and it hawed. It complained about the question, then it said no, then it said yes, then it spent pages asking the Court to do certain things if it lost. Meanwhile, the petitioners responded in their first paragraph: 'The answer to that question is clear and simple: Yes.' " (Prof. Michael McConnell, via The Washington Post; subscription may be required)
Puerto Rico Church Strips Teachers of Pension Amid Crisis
"Archdiocese officials in recent weeks informed ... several hundred ... current and retired teachers that their pensions will be eliminated because payouts exceeded contributions. Enrollment at Catholic schools in Puerto Rico has plunged with so many families leaving the island for the U.S. mainland amid the island's economic crunch.... As Puerto Rico's government teeters on the brink of insolvency, the grim fate of this group of current and former teachers could signal more pain to come for other workers expecting pensions -- not only at private workplaces like the church, but also in the island's troubled public sector." (The Washington Post; subscription may be required)
Benefit Plans of Church-Affiliated Organizations May Have to Comply with ERISA
"[The Stapleton] Court's focus on the 'actually established' language of the church plan exemption requires a much closer look at the process by which a plan was established.... Prior to this decision by the Seventh Circuit and a similar December 2015 decision by the Third Circuit, the main concern of religious-affiliated organizations that were not actual 'steeple' churches was whether or not they were sufficiently 'associated with or controlled by' an actual church, i.e., whether they were church-governed enough to be entitled to the ERISA exemption." (Michael Best & Friedrich LLP)
Courts Strike Down Church Plan Exemptions for Church-Affiliated Organizations
"The recent holdings by two, and perhaps soon to be three, federal circuit courts rejecting the church plan exemption for plans established and maintained by church-affiliated organizations represent an alarming trend for sponsors of such plans. These holdings not only conclude that a church-affiliated organization cannot establish a church plan but also suggest that many such organizations are not even qualified to maintain a church plan." (Bradley Arant Boult Cummings LLP)
SSM Health in Cross Hairs of Latest Church Plan Lawsuit
"The recent influx of lawsuits challenging hospitals' pension funding levels doesn't appear to be slowing down, with the latest one accusing SSM Health Care Corp. of a $723 million pension shortfall in violation of ERISA. The lawsuit is the third class action filed in as many weeks that takes aim at a religious health-care company's decision to treat its pension plan as a church plan exempt from federal funding requirements. More than a dozen similar lawsuits have been filed over the past three years, with two federal appellate courts ruling against the hospitals." (Bloomberg BNA)
Mercy Health Targeted in Latest Church Plan Class Action
"Another Cincinnati hospital has been sued for treating its pension plan as an ERISA-exempt church plan. The proposed class action -- which accuses Mercy Health of underfunding its pension plan by nearly $210 million -- asks a question that more than a dozen recent lawsuits have asked, including one filed two weeks ago against fellow Cincinnati hospital St. Elizabeth Medical Center Inc.... According to the complaint, Mercy Health is the largest health system in Ohio and the fourth largest employer in Ohio, operating 23 hospitals and employing 32,000 people." (Bloomberg BNA)
New Church Plan Lawsuit Alleges Underfunding of $204M
"Cincinnati-based St. Elizabeth Medical Center Inc. is the latest hospital to be targeted by a lawsuit challenging its decision to treat its pension plan as an ERISA-exempt church plan.... According to the complaint against St. Elizabeth, the hospital's pension plan is underfunded by more than $204 million. If the lawsuit is successful, the hospital could be forced to make up this funding deficiency or implement other worker protections required by ERISA." (Bloomberg BNA)
Seventh Circuit Holds Retirement Plan Established by a Church-Affiliated Organization Does Not Qualify as an ERISA Church Plan
"The Seventh Circuit rejected Advocate's position that ... a plan can qualify as a church plan merely by being maintained by a church-affiliated organization because the reading would make the establishment requirement of ERISA Section 3(33)(a) meaningless. Accordingly, because Advocate's predecessor that created the plan was not a church, its defined benefit plan was not established by a church and could not qualify as a church plan even though it was maintained by a church-affiliated organization. Like the Third Circuit, the Seventh Circuit held that the statute's language was unambiguous[.]" [Stapleton v. Advocate Health Care Network, No. 15-1368 (7th Cir. Mar. 17, 2016)] (Practical Law Company)
Church Plan Challengers Score Second Appellate Victory
"Although the district courts have issued mixed rulings in these lawsuits, the hospitals have struck out with both of the appellate courts to have considered these questions, with the Seventh Circuit following the Third Circuit's 2015 decision against Saint Peter's Healthcare System.... The next appellate decision in this line of cases is likely to come from the Ninth Circuit, which heard arguments in a similar case in February[.]" [Stapleton v. Advocate Health Care Network, No. 15-1368 (7th Cir. Mar. 17, 2016)] (Bloomberg BNA)
Text of Seventh Circuit Opinion: Hospital DB Plan Cannot Qualify as Church Plan (PDF)
30 pages. "Advocate's position -- that a plan qualifies as a church plan merely by being maintained by a church-affiliated organization -- has a fatal flaw. If a plan could qualify solely on the basis of being maintained by a church-affiliated organization, the 'established by a church' requirement of subsection (33)(A) would become meaningless." [Stapleton v. Advocate Health Care Network, No. 15-1368 (7th Cir. Mar. 17, 2016)] (U.S. Court of Appeals for the Seventh Circuit)
District Court in Colorado Expands Church Plan Exemption Under ERISA But Others Join Third Circuit in Narrow Interpretation
"The [Colorado Federal District Court] found that a plan does not need to be established by a church to qualify as a church plan; rather, such plans can also qualify as church plans if they are maintained by a tax-exempt organization controlled by or associated with a church whose principal purpose or function is the administration or funding of the benefits plan.... [In contrast, the] Third Circuit stated that, as of 2012, religiously affiliated hospitals accounted for seven of the nation's ten largest nonprofit healthcare systems and that applying the church plan exemption to these hospitals would defeat the purpose of ERISA." (Jackson Lewis P.C.)
[Guidance Overview] More Church Plan Changes in Budget Bill
"[This] update [describes] portions of the Church Plan Clarification Act, including: [1] Rules addressing limitations for grandfathered 403(b) defined benefit plans, [2] Rules preempting state laws relating to automatic enrollment in church plans, and [3] Rules permitting church plans to invest in group trusts." (FIS Relius)
Recent Legislation Provides Good News for Some Church Plans
"Provisions of the Protecting Americans from Tax Hikes Act of 2015 [PATH] ... will allow church retirement plans to include automatic enrollment features in their retirement programs regardless of state wage withholding laws, as well as allow for certain kinds of transfers and mergers between accounts of the same employer. Additionally, provisions addressing counting employees for benefit purposes among certain church-related employers will help distinguish between different kinds of church and denominational governance structures." (Baptist Message)
[Guidance Overview] Budget Bill Allows Churches to Merge Qualified and 403(b) Plans: Part 1
"First and foremost, a church plan is a plan a church establishes and maintains for its employees. The church can do this directly or through a separate organization, which has the principal function of administering or funding a retirement benefit program for church employees.... The term 'employee' in this context includes some persons who are not employees of the church itself.... A plan is not a church plan if it is established and maintained primarily to benefit employees of one or more unrelated trades or businesses under Code Section 513. The regulations provide a detailed 50% test for this rule, softened by a facts and circumstances alternative.... A more narrow definition of church appears in several 403(b) rules." (SunGard Relius)
[Guidance Overview] Tax Code Will Permit Merger of 403(b) and 401(a) Church Plans
"One of the questions that the IRS will need to answer in guidance is how Rev. Proc. 2007-71 applies. That revenue procedure permitted employers to exclude from its plan certain pre-2005 contracts (and, under certain circumstance, certain pre-2009 contracts) ... [T]here will be some serious complications under ERISA for those 'electing church plans,' which have elected to be covered by ERISA. What really makes the new rules work so well is that the typical 414(e)(3) church will not be governed by ERISA, which will make the merger/transfer much simpler." (Business of Benefits)
The Status of Church Plans After Kaplan v. Saint Peter's Healthcare System
"Saint Peter's plan was approximately $70 million underfunded at the time the lawsuit was filed ... Closing that gap under ERISA will not be easy. Plans newly subject to ERISA also would subject plan sponsors to PBGC scrutiny and impose PBGC insurance premium obligations. These financial strains may lead to corporate restructurings, layoffs, mergers or bankruptcies." [Kaplan v. St. Peter's Healthcare System, No. 15-1172 (3d Cir. Dec. 29, 2015)] (Seyfarth Shaw LLP)

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