By Pension and Benefits Editorial Staff
The pension plan of a Catholic hospital was exempt from ERISA’s funding requirements as a church plan, according to a federal trial court in Kentucky. The plan was maintained by an internal benefits committee that qualified as a principal purpose organization because its principal purpose was the administration of the plan. As the principal purpose organization maintaining the plan was associated with the Catholic Church, the plan qualified for the expanded church plan exemption authorized by the Supreme Court in the 2017 case of Advocate Health Care Network v. Stapleton.
Underfunded pension plan of Catholic affiliated hospital. Participants in a pension plan established and funded by St. Elizabeth Medical Center, brought a class action suit against the hospital, a plan administrative committee, and individual administrators, alleging violations of ERISA’s funding requirements. St. Elizabeth, a hospital founded by, and affiliated with, the Catholic Church, countered that the plan was exempt from ERISA’s funding rules as a church plan.
The case was stayed pending resolution of the scope of the church plan exemption by the United States Supreme Court in Advocate Health Care Network v. Stapleton (US Sup Ct. (2017), 137 S. Ct 1652). Following the issuance of Stapleton, the participants filed an amended complaint. St. Elizabeth, newly empowered by the Supreme Court’s ruling in Stapleton, filed a motion for summary judgment, maintaining that the plan was a church plan.
Supreme Court extends church plan exemption to plans maintained by principal purpose organizations. In Stapleton, the Supreme Court interpreted the church plan exemption authorized in ERISA Sec. 3(33)(C), as applying to plans established and maintained by a church or association of churches, or, plans maintained by an organization with the “principal purpose” of administering or funding the plan (i.e., principal purpose organizations). The Court, however, expressly did not determine whether an internal benefits committee could qualify as a principal purposed organization.
The Tenth Circuit, subsequently, devised a three-part test for determining whether a plan maintained by a principal purpose organization falls within the church plan exemption (Medina v. Catholic Health Initiatives, CA-10 (2017), 877 F. 3d 1213). Under the “Medina test:” (1) the entity must be a tax-exempt nonprofit organization associated with a church; (2) the plan must be maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees; and (3) the principal purpose organization must be associated with a church.
Applying the Medina test, the court first concluded that St. Elizabeth was clearly associated with the Catholic Church. The second inquiry, as to whether the plan was maintained by a principal purpose organization, proved more problematic.
Plan maintained by principal purpose organization. The plan participants argued the plan committee was not an organization maintaining the plan. In addition, the participants contended that the Committee was not a principal purpose organization because it was not administering a plan.
Dismissing the participants’ arguments, the court first ruled that the plan’s internal benefit committee was an “organization,” for purposes of ERISA, because it consisted of a group of people charged with the specific purpose of administering the plan and serving as the named fiduciary of the plan. The court specifically rejected the participants’ contention that the Committee was not an organization because it was not a completely separate entity from the hospital’s board of trustees.
The court next determined that the Committee was an organization maintaining the plan. Focusing on the structure, purposes, and responsibilities of the Committee, as specified in the plan document, the court stressed that the plan document indicated that the purpose of the Committee was to manage and administer the plan. Incident to this role, the Committee was empowered to do all things necessary to effect the interests and purposes of the plan (e.g., claims administration, plan interpretation, and the establishment of a plan funding policy) and to ensure the continuation of the plan.
The participants argued that the Committee was not maintaining the plan, but merely administering it. The court ruled, however, that the Committee was responsible for actions necessary for the long-term viability of the plan (e.g., interpreting and amending the plan and developing funding policies) and therefore, was undertaking more than administrative duties.
The Committee delegated some responsibilities, such as claims administration to independent third parties. However, the delegation of certain responsibilities, the court stressed, did not negate the fact that the Committee maintained the plan.
The participants further argued that St. Elizabeth and the Committee could not both maintain the plan. The court, however, explained that neither case law nor ERISA require or suggest that only one organization can maintain a church plan.
Committee is a principal purpose organization. The court next determined that the Committee maintaining the plan was a principal purpose organization, as its principal purpose was the administration of the plan. The plan document and the resolution creating the Committee indicated that the objective of the Committee was to manage and administer the plan. While, acknowledging that the Committee delegated some administrative activities, the court stressed that it was “undisputable” that the principal purpose of the Committee (as opposed to its principal “function”) was the administration of the plan.
Principal purpose organization associated with church. In finally determining whether the Committee was a principal purpose organization associated with a church, the court, citing Medina, explained that a subdivision wholly encompassed by a larger entity shares that entity’s affiliation. Having found that St. Elizabeth was associated with the Catholic Church, and the Committee was an internal subset of St. Elizabeth, the court concluded that the Committee was also associated with the Catholic Church.
SOURCE: Boden v. St. Elizabeth Medical Center, Inc. (DC KY)
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