While it seems straightforward that a church must establish and maintain a pension plan in order to qualify for the “church-plan” exemption to the Employee Retirement Income Security Act of 1974 (“ERISA”), it has taken three federal District Court decisions in the United States to convey this message to many hospitals.  On July 26, 2016, the Ninth Circuit Court of Appeal in Rollins v. Dignity Health (7-26-2016) (16 C.D.O.S. 7916) became the latest district to join the Third Circuit [Kaplan v. Saint Peter’s Healthcare Sys., 810 F.3d 175, 180-81 (2015)] and the Seventh Circuit [Stapleton v. Advocate Health Care Network, 817 F.3d 517, 523-27 (2016)] in rendering this interpretation in regard to hospital pension plans.

In Rollins, an employee of San Bernardino Community Hospital, which became affiliated with Catholic Healthcare West (“CHW”) and whose name was later changed to “Dignity Health”, was advised that CHW considered her pension plan to be a church plan exempt from ERISA.  This determination was based on two factors: (1) CHW was initially formed by the merger of two nonprofit hospital systems established by two church congregations, and the CHW pension plan was combined with five other individual hospital plans or church plans into the employee’s existing pension plan; and (2) a 1983 General Counsel Memorandum from the I.R.S. which opined that a pension plan may qualify as a church plan if it is maintained by the Catholic Church, regardless of what entity established the plan.  See I.R.S. Gen. Couns. Mem. 39,007 (July 1, 1983).

The Ninth Circuit expressly disagreed with the I.R.S. opinion letter and Dignity Health’s position that it had a “church plan” because both ignored the express language in the ERISA statute and its Legislative History.  First, ERISA states that “church plans”, which are established and maintained by a church or association of churches, are exempt from the applicable requirements of ERISA.  Both elements are required to qualify for the exemption.  See 29 U.S.C. at §§ 1002(33) and 1003(b)(2).  Second, the Legislative History makes clear that when these laws were originally enacted in 1974, these same two requirements existed.  The subsequent amendments in 1980 did not eliminate the requirement that a church plan be established by a church; rather, they expanded the definition of employees eligible to participate in a church plan and expanded the entities that could maintain such plans (e.g., church-controlled or church-affiliated pension boards instead of just the church itself).

Why does losing the church plan ERISA exemption matter to Dignity Health and other hospitals around the country (e.g., Saint Peter’s Healthcare System; Advocate Health Care Network)?  For years, these hospitals have not complied with the funding requirements of ERISA and hundreds of thousands of hospital employees are facing a shortfall of billions of dollars in their pensions.  Because these hospitals are facing significant financial liability, they have petitioned the U.S. Supreme Court to weigh in on the requirement that a church must establish a pension plan in order to qualify for the church plan ERISA exemption.