By Dave Strausfeld, J.D. To qualify for ERISA’s "church plan" exemption, a pension plan must have been established by a church, held the Ninth Circuit on an interlocutory appeal of a partial summary judgment ruling against a hospital system. The suit was brought by a billing coordinator at a Catholic hospital system facility who alleged that her pension plan was not exempt from ERISA as a church plan, as her employer claimed it was, and that her employer needed to comply with ERISA’s requirements. The appeals court’s decision follows those in the Third and Seventh Circuits (Rollins v. Dignity Health, July 26, 2016, Fletcher, W.). Sued to force her employer to comply with ERISA. Several decades ago, a group of Catholic churches in California established a nonprofit hospital system, and they also created a pension plan for the hospital employees that the board of directors determined by resolution was a "church plan," meaning it was exempt from ERISA. Sometime later, San Bernardino Community Hospital became affiliated with the hospital system and adopted the pension plan. A billing coordinator at the San Bernardino facility filed this putative class action against the hospital system, seeking a declaratory judgment that the pension plan was not a valid church plan (as well as other relief). The hospital system, for its part, conceded that the pension plan did not comply with ERISA, but it insisted that the plan need not do so because it qualified for ERISA’s church-plan exemption. What is a "church plan"? The issue here was one of statutory interpretation. Somewhat oversimplifying the complex statutory definitions, ERISA expressly exempts from its coverage "church plans." It goes on to define the term by saying that a church plan must be both established and maintained by a church, and—particularly important here—this "includes" a plan that is maintained by a church-affiliated organization whose principal purpose is to provide benefits to employees (for convenience, "principal-purpose organization"). Two possible readings. This statutory definition can be read in two possible ways, the court observed. First, it can be read to require that a church plan must be established by a church. Second, the definition can be read to mean that a plan maintained by a principal-purpose organization qualifies as a church plan even if it was established by an organization other than a church. Parsing the difficult statutory language, the Ninth Circuit concluded that "the more natural reading" was that the phrase preceded by the word "includes" did not eliminate the requirement that a church plan must be established by a church. Related statutes unhelpful. The hospital system pointed out that certain other federal statutes define "church plan" more broadly. For instance, a 2004 statute provides that YMCA retirement plans will be "treated as" church plans. But this statute, the court emphasized, did not indicate a congressional intent to interpret or redefine the meaning of the term "church plan" in ERISA. IRS’s interpretation rejected. The hospital system next argued that the appeals court must defer to the view expressed by the Internal Revenue Service. In a 1983 General Counsel Memorandum, the IRS addressed whether a retirement plan "covering the lay employees of a religious order whose main activity is the operation of nursing homes or hospitals can be a ‘church plan’ within the meaning of" the Internal Revenue Code. The agency opined that such plans could qualify as church plans if they were maintained by a church-affiliated principal-purpose organization. Pointedly rejecting the IRS’s interpretation, the appeals court found that the agency’s view was "based on an obvious misreading of the statutory text, and it ignores the relevant legislative history." The court thus concluded that the IRS General Counsel Memorandum was not entitled to deference. Freedom-of-religion arguments. Raising the specter of constitutional issues, the hospital system contended that the appeals court should construe ERISA’s definition of "church plan" so as to avoid conflicting with the First Amendment’s Religion Clauses. But in a lengthy discussion about various asserted ways its reading of "church plan" might conflict with the Establishment and Free Exercise Clauses—including interfering with internal matters of church governance—the appeals court concluded that there were no such conflicts. No other issues decided. The hospital system also urged the appeals court to review the district court’s ruling that its pension plan was not established by a church. But the court, exercising its discretion, concluded that interlocutory consideration of this and other summary judgment issues was unwarranted.
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