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Review of What Qualifies as a “Church Plan” Exempt from ERISA – S.D. Il.

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  • Review of What Qualifies as a “Church Plan” Exempt from ERISA – S.D. Il.

    Review of What Qualifies as a “Church Plan” Exempt from ERISA – S.D. Il.

    Attached is a case out of the Southern District of Illinois, Smith, et. al. v. OSF HealthCare System, et. al. The crux of the matter is that Plaintiffs brought the suit alleging that the subject retirement plans were improperly labeled as “church plans” exempt from ERISA and, therefore, the plans were underfunded pursuant to the funding requirements of ERISA. The court found that the retirements plans were “church plans” and exempt from ERISA.

    Do the Plans Qualify for the ERISA Church Plan Exemption?

    ERISA exempts “church plans” from its requirements. 29 U.S.C. § 1003(b)(2). Originally, the statute defined a church plan as “a plan established and maintained ... for its employees ... by a church or by a convention or association of churches.” 29 U.S.C. § 1002(33)(A). In 1980, Congress passed the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA”), Pub. L. No. 96-364, § 407, 94 Stat. 1208 (1980), which amended the statute by expanding the scope of the church plan exemption. Under the amended statute, “an ‘employee of a church’ includes an employee of a church-affiliated organization[.]” Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652, 1656, (2017) (citing 29 U.S.C. § 1002(33)(C)(ii)(II)). The amendment also expanded the scope of the church plan exemption to include:

    A plan established and maintained for its employees ... by a church or by a convention or association of churches includes a plan maintained by an organization ... 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. 29 U.S.C. § 1002(33)(C)(i).

    For purposes of defining church plans, “employees of a church” include “an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of Title 26 and which is controlled by or associated with a church or a convention or association of churches.” 29 U.S.C. § 1002(33)(C)(ii)(II). Thus, the term “employee of a church” includes employees of nonprofit organizations controlled by or associated with a church.

    In its recent decision in Advocate, the Supreme Court concluded that the church plan exemption applies to certain Plans not established by a church. Specifically, the Court found that “[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization ... qualifies as a ‘church plan,’ regardless of who established it.” Advocate, 137 S.Ct. at 1663.

    Following Advocate, courts have engaged in a three-step inquiry in order to determine whether the church plan exemption applies to Plans maintained by principal-purpose organizations:

    1. Is the entity whose employees the plan benefits a tax-exempt nonprofit organization associated with a church?

    2. If so, is the entity’s retirement plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees?

    3. If so, is that principal-purpose organization itself associated with a church? Medina v. Catholic Health Initiatives, 877 F.3d 1213, 1222 (10th Cir. 2017). 2 This Court will employ this approach.
    1. Is OSF a Nonprofit Organization Associated With a Church?

    The entity whose plan is being maintained must be both a tax-exempt nonprofit and associated with a church, because “[t]he term employee of a church or a convention or association of churches includes [ ] an employee of an organization..., which is exempt from tax under [26 U.S.C. § 501] and which is controlled by or associated with a church or a convention or association of churches[.]” 29 U.S.C. § 1002(33)(C)(ii)(II). Plaintiffs concede that OSF is a nonprofit organization, and that St. Anthony’s Health Center was a nonprofit entity prior to its acquisition by OSF. (Plaintiffs’ Opposition to Defendants’ Motion for Summary Judgment, Doc. 191 at 11). What remains in dispute is whether OSF is “associated with” the church under the statute.

    The term “associated with a church or convention or association of churches” refers to an organization that “shares common religious bonds and convictions with that church or convention or association of churches.” 29 U.S.C. § 1002(33)(C)(iv). Here, the undisputed facts demonstrate that OSF “shares common religious bonds and convictions” with the Catholic Church. As previously noted, STOSF (whose membership is limited to Sisters) is the sole member of OSF. In addition to numerous references to Catholicism throughout its statements of values, OSF has incorporated Roman Catholic doctrine into its basic structure, including the qualification for directorship and the automatic invalidation of any medical bylaw or rule that conflicts with the ERDs formulated by the United States Conference of Catholic Bishops. OSF is listed in the Official Catholic Directory, which “[c]ourts view…as a public declaration by the Roman Catholic Church that an organization is associated with the Church.” Overall v. Ascension, 23 F. Supp. 3d 816, 831 (E.D. Mich. 2014) (collecting cases). OSF’s “convictions” are evidenced by references to the doctrine, norms and dictates of the Roman Catholic Church, and the Catholic Church acknowledges OSF as an associated organization. These facts reflect shared bonds and convictions and satisfy the statutory requirement that OSF be “associated with” a church or a convention or association of churches. See also Hall v. USAble Life, 774 F. Supp. 2d 953, 960 (E.D. Ark. 2011).

    The Court acknowledges Plaintiffs’ urging for it to adopt the Fourth Circuit’s “objective test” for determining whether an organization is “associated with a church or convention or association of churches.” In Lown v. Cont'l Cas. Co., 238 F.3d 543, 548 (4th Cir. 2001), the Fourth Circuit held that “[i]n deciding whether an organization shares such common bonds and convictions with a church, three factors bear primary consideration: 1) whether the religious institution plays any official role in the governance of the organization; 2) whether the organization receives assistance from the religious institution; and 3) whether a denominational requirement exists for any employee or patient/customer of the organization.” The Eighth Circuit subsequently found the test “useful.” Chronister v. Baptist Health, 442 F.3d 648, 653 (8th Cir. 2006). This Court finds it less so. The existence of any of the three Lown considerations would certainly indicate institutional control. But “common bonds and convictions” entail something more. The Court agrees with the Tenth Circuit’s assessment that the Lown factors “are much narrower than the broad language of the definition in § 1002(33)(C)(iv)” and therefore do not suffice as an exclusive test for association. Medina, 877 F.3d at 1224.

    Plaintiffs also raise one of the affirmative exclusions from the definition of a church plan; disqualifying a plan “if less than substantially all of the individuals included in the plan” are employees of a church or are deemed employees of a church. 29 U.S.C. §1002(33)(B)(ii). Employees of a nonprofit organization controlled by or associated with a church are deemed employees of the church. Defendants assert (and Plaintiffs do not dispute) that all of the employees covered by the St. Anthony’s Plan and all but 60 employees out of the approximately 18,000 covered by the St. Francis Plan are employees of OSF’s nonprofit ventures. 99.6% certainly constitutes “substantially all.” Therefore, the Plans are not excluded from the church plan definition on that basis.
    1. Are the Plan Committees principal-purpose organizations?

    A principal-purpose organization is one whose “principal purpose or function ... 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.” 29 U.S.C. § 1002(33)(C)(i). “Organization” is not a defined term under the statute. However, in defining “associated with,” the statute provides that organizations may qualify “whether a civil law corporation or otherwise[.]” 29 U.S.C. § 1002(33)(C)(iv). This suggests that principal purpose organizations need not be a separate, legally independent entity, and is consistent with the ordinary meaning of the term.

    Black's Law Dictionary defines “organization” as “a body of persons (such as a union or corporation) formed for a common purpose.” Organization, Black's Law Dictionary (10th ed. 2014). Similarly, the Oxford English Dictionary defines it as “[a]n organized body of people with a particular purpose, as a business, government department, charity, etc.” Organization, Oxford English Dictionary (Third ed. 2004). Neither of these definitions lead one to conclude that an organization must be legally separate from any other entity. Several courts have interpreted the term in this manner and concluded that internal, non-independent subcommittees may qualify as “organizations” for purposes of the ERISA church plan exemption. See Medina, 877 F.3d at 1226; Sanzone v. Health, No. 4:16 CV 923 CDP, 2018 WL 4071897, at *7 (E.D. Mo. Aug. 27, 2018); and Thorkelson v. Publ'g House of Evangelical Lutheran Church in Am., 764 F. Supp. 2d 1119, 1127 (D. Minn. 2011). This Court joins them and finds that the Plan Committees are organizations for purposes of the Court’s analysis.

    Next, Plaintiffs challenge whether the Plan Committees actually “maintain” the Plans. It is undisputed that the Plan Committees are the administrators of the Plans. (Docs. 138 and 140 at ¶¶ 101-104, 106-108). Nevertheless, Plaintiffs contend that OSF and SAHC (presumably before the acquisition) – not the Plan Committees – actually maintain the Plans. More particularly, they argue that maintaining a Plan necessarily includes the power to modify or terminate it (powers that are at least partially reserved to OSF) as well as funding it.

    These arguments were considered and rejected in Medina, 877 F.3d at 1224–25, and by District Judge Catherine Perry of the Eastern District of Missouri in Sanzone, 2018 WL 4071897, at *5. Both found that the “ordinary meaning” approach to interpreting the term “maintain” is appropriate, and found that the ordinary meaning did not require the power to modify or terminate the plan in order for an entity to be said to maintain it. “Maintain” has several definitions in Black’s Law Dictionary, the most applicable one being “[t]o care for (property) for purposes of operational productivity or appearance; to engage in general repair and upkeep.” Maintain, Black's Law Dictionary (10th ed. 2014). Merriam-Webster's similarly defines “maintain” as “to keep in an existing state (as of repair, efficiency, or validity)”; “to continue or persevere in”; “sustain”; and “to support or provide for.” Maintain, Merriam-Webster's II Collegiate Dictionary (10th ed. 2002). In holding that a subcommittee did “maintain” the Plan in question, the Medina court concluded, “when ERISA says that a church plan includes a plan ‘maintained’ by a principal-purpose organization, 29 U.S.C. § 1002(33)(C), it simply means the principal-purpose organization, as Black’s says, ‘cares for the plan for purposes of operational productivity.’ And this is precisely the point of the Subcommittee.” Medina, 877 F.3d at 1225. The Court agrees.3

    The Plan Committees have authority over the Plans sufficient to meet the ordinary meaning of “maintaining” the Plans. The Committees are each given significant power and control over the interpretation of the Plans, the eligibility of claimants, entitlement to benefits, as well as rule-making authority. This degree of authority is consistent with “caring for the Plans for purposes of operational productivity.”

    Plaintiffs also suggest that the Plan Committees do not have “primary ongoing responsibility (and potential liability) to plan participants [,]” and therefore they do not “maintain” the Plans. (Doc. 191 at 18) (citing Advocate, 137 S. Ct. at 1661). The record in this case, however, belies this suggestion. Both Plans entrust decisions about participant claims, eligibility and benefits to their respective Plan Committee, including the eligibility of an employee, beneficiary or other person to receive Plan benefits, as well as the interpretation of Plan provisions and the administration of claims procedures. The St. Francis Plan specifically states that “Benefits under the Plan shall not be paid unless the [St. Francis Committee], in its discretion, determines that the Claimant is entitled to them.” (Doc. 153-1 at 65). These are central responsibilities that may give rise to claims for the wrongful denial of benefits. The interpretation advocated by Plaintiffs, which necessitates the inclusion of plan funding and the power to modify or terminate the Plan, is simply too narrow. One may be appointed caretaker to maintain a property without the authority to burn it to the ground, build an addition or sell it. 4
    1. Are the Plan Committees Associated with a Church?

    Whether the Plan Committees themselves are sufficiently associated with a church rests on ERISA’s definition of the term “associated with”; “shar[ing] common religious bonds and convictions with that church or convention or association of churches.” 29 U.S.C. § 1002(33)(C)(iv). In that vein, the Plan Committees are tightly connected with the Roman Catholic Church. They are both dominated by members of a recognized Roman Catholic religious order. Moreover, to the extent the Plan Committees are internal organizations of OSF, they share OSF’s Catholic affiliation. See Medina, 877 F.3d at 1277. See also Advocate, 137 S. Ct. 1659 (“[I]f A is exempt, and A includes C, then C is exempt.”) (quoting Overall, 23 F.Supp.3d at 828).

    Based on an examination of the record and the arguments of the parties in the context of the Medina factors, the Court is persuaded that the church plan exemption applies to the Plans at issue.
    Attached Files
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