Last year, in Advocate Health Care Network v. Stapleton, the U.S. Supreme Court decided that a special type of “church plan,” intended to be exempt from Title I of ERISA  and many Internal Revenue Code requirements, does not have to be “established” by a church or a convention or association of churches. Advocate was widely hailed at the time as a major victory for the sponsors of such church plans. That victory was, however, tempered by several questions that the Supreme Court left unanswered, such as what is required for an organization to “maintain” such a church plan. (See our prior article on Advocate and its impact on the sponsors of similar church plans.) A U.S. District Court in California, in one of the three cases remanded in Advocate back to the lower courts for further consideration, has now provided what might be a glimpse at the answer to the “maintain” question—an answer that is sure to reignite concern and uncertainty among many church plan sponsors that are not themselves churches or conventions or associations of churches. The issue addressed in this recent ruling may very well make it back before the Supreme Court for a final decision.

ERISA Section 3(33)(A) defines a “church plan” to mean “a plan established and maintained…by a church or by a convention or association of churches… .” ERISA Section 3(33)(C)(i), added six years after the creation of the statute, provides that “[a] plan established and maintained…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.” (Emphasis added.) The latter provision was intended to allow certain organizations related to, but legally separate from, certain religious organizations, to “maintain” church plans; these organizations are referred to as “principal purpose organizations.”

A large number of plans, many used to provide benefits to church-affiliated hospitals, universities and similar organizations, have been created by such organizations with the intent to satisfy the ERISA Section 3(33)(C)(i) requirements. In the usual case, an administrative committee with ties to one or more religious organizations is appointed as the administrator of the plan. Both the Internal Revenue Service and the U.S. Department of Labor have issued numerous rulings approving of such plans as ERISA Section 3(33)(C)(i) church plans, on the basis that such administrative committees constitute principal purpose organizations within the meaning of the statute.

Church plans are exempt from Title I of ERISA and are also exempt from a number of significant provisions in the Internal Revenue Code, including the minimum funding standard rules applicable to private sector defined benefit plans. In recent years, a number of the defined benefit plans sponsored by religiously affiliated organizations have become substantially underfunded. Lawsuits challenging the church plan status of such plans have been brought on behalf of the plan participants and are winding their way through the courts. Loss of church plan status for many of the plans involved in such litigation will, in all likelihood, have significant and potentially calamitous impact on the financial health of the plans’ sponsors. The technical issue addressed in these cases regarding the church plan status of the plans involved will also impact the sponsors of all ERISA Section 3(33)(C)(i) plans, including defined contribution retirement plans and welfare benefit plans.  

Three cases, including Rollins v. Dignity Health (Rollins), were consolidated and reached the Supreme Court last year in Advocate. The original trial court in Rollins concluded that a church plan must be “established” by a church or by a convention or association of churches, without reaching the question of what is required for an organization to “maintain” a plan within the meaning of ERISA Section 3(33)(C)(i). Thus, the trial court held that the plan established by Dignity Health (a not-for-profit hospital conglomerate) was not a church plan. The Ninth Circuit affirmed on this basis. The Supreme Court rejected this conclusion in Advocate and remanded the case back to the trial court for further proceedings while, in an exercise of judicial restraint, avoided addressing the question of what is required for an organization to “maintain” the plan in question as a church plan described in ERISA Section 3(33)(C)(i).

That issue has now been addressed for the first time by the U.S. District Court for the Northern District of California in Rollins through its partial rejection of a motion to dismiss filed by Dignity Health in the wake of the Supreme Court decision in Advocate (see Rollins v. Dignity Health). It must be emphasized that this decision is not a final determination on the merits but is, instead, a very carefully reasoned opinion on Dignity Health’s motion to dismiss on the grounds that the plan in question is a church plan; the opinion goes to great lengths to emphasize that it may reach a different conclusion at the summary judgment stage. Nevertheless, the trial court’s ruling does give credence to the plaintiffs’ assertion that the Dignity Health plan was not “maintained” by a principal-purpose organization described in ERISA Section 3(33)(C)(i).

The trial court first found that plaintiffs had the better argument about what entity actually maintains the plan in question. Dignity Health argued that the plan is properly maintained by a retirement plan sub-committee, as the administrator of the plan. However, the trial court, applying principles of statutory construction, explained that the word “maintained,” as used in ERISA, must have a meaning separate from the term “administration or funding” of a plan. The trial court even found support for such analysis in the Advocate opinion itself, which provides that “it is the entity maintaining the plan that has the primary ongoing responsibility (and potential liability) to plan participants.” The trial court also reviewed other uses of the term “maintain” throughout ERISA Section 3 and concluded that maintaining a plan means something more than just administering the plan.

Furthermore, the trial court agreed that the plaintiffs raised a viable argument as to whether an internal committee could “maintain” a plan under any circumstances. ERISA Section 3(33)(C)(i) states that an organization maintaining a church plan may be “a civil law corporation or otherwise.” (Emphasis added.) Dignity Health claimed that the committee necessarily qualified as an “otherwise.” The trial court disagreed and concluded that such a term “cannot simply encompass any possible entity, or else the statutory distinction would lose all meaning.” The trial court declined to further opine on what “or otherwise” could mean, again reserving the issue for the summary judgment stage of litigation.

Finally, the trial court also found merit in the plaintiffs’ allegation that Dignity Health itself is not a principal-purpose organization eligible to maintain a church plan because it does not share “common bonds and religious conviction” with a church—a necessary requirement to be “associated with” a church. However, the court explained that the issue of religious affiliation, which is sensitive and highly factual by nature, is also best reserved for determination at the summary judgment stage.

Again, to be clear, the trial court’s opinion in Rollins partially denying the motion to dismiss filed by Dignity Health does not provide final answers on what it means to “maintain” a church plan. Nevertheless, it does lend significant support to a line of attack that could be used to challenge the ERISA Section 3(33)(C)(i) church plan status of many plans that are sponsored by one organization and administered by a committee. That is, if a plan can only be “maintained” by the plan sponsor, rather than a committee or other organization administering the plan, then the plan sponsor must itself be a church or convention or association of churches, or a principal-purpose organization described in ERISA Section 3(33)(C)(i). Because plan sponsors that are not actually churches almost always have some principal purpose other than funding or administering a plan (i.e., hospitals, schools, other not-for-profit activities), such a requirement would be difficult to satisfy.

The analysis in the opinion of the trial court in Rollins may eventually become the law of the land. However, it could just as easily be overturned by a higher court as an attempt to impose the same result urged by the plaintiffs that was rejected in Advocate, where the Supreme Court said that ERISA 3(33)(C)(i) church plans did not have to be established by churches or organizations of churches.  While the authors are not so bold as to predict the outcome, they are confident that this issue is going to continue to be contested in the courts and may just wind its way back to the Supreme Court.