By Pension and Benefits Editorial Staff
The internal benefits committee administering the pension plan of a multi-billion-dollar non-profit hospital constituted a principal purpose organization for purposes of the church plan exemption under ERISA, according to the U.S. Court of Appeals in St. Louis (CA-8). The committee, which was empowered with discretionary authority to implement plan provisions, maintained the plan and functioned as a group of people working together for a shared purpose.
Underfunded church plan of religiously affiliated hospital. Mercy Health is a non-profit corporation founded by the Sisters of Mercy, a religious order established by the Catholic Church. Mercy and its subsidiaries operated hospitals in 4 states, employed more than 40,000 people, possessed $6.4 million in assets, and reported operating revenues over $5 billion.
Mercy sponsored a retirement plan, which is administered by an internal benefits committee. The committee includes five members, four of whom are sisters of the religious order.
A nurse who worked for 25 years at Mercy Health filed suit, alleging that Mercy’s management of the plan violated ERISA’s requirements. Specifically, the employee alleged that Mercy breached ERISA”s minimum funding requirements and failed to make required plan contributions, allowing the plan to become underfunded by 25 percent. The committee, the employee charged, also failed to provide summary plan descriptions, annual reports, notifications of the failure to comply with minimum funding obligations, and other ERISA requirements.
Mercy asserted that it was exempt from ERISA’s requirements as a church plan. A federal trial court agreed that the plan was exempt from ERISA as a church plan and dismissed the case for lack of jurisdiction. The employee appealed, challenging the lower court’s application of the church plan exemption.
Principal purpose organization. In Advocate Health Care Network v. Stapleton, the United States Supreme Court unanimously held that a pension plan maintained by a church-affiliated organization with the “principal purpose” of administering or funding the plan can be a church plan, exempt from ERISA’s requirements, if the organization is controlled by or associated with the church (U.S. Sup. Ct. (2017). The Court, however, expressly left unanswered the question of whether a church-affiliated hospital’s internal benefits committee can constitute a principal purpose organization for purposes of the church plan exemption.
The employee conceded that the hospital’s internal benefits committee administered the plan and was associated with the Catholic Church. However, on appeal, the employee argued that the committee did not “maintain” the plan and was not an “organization” as required under ERISA Sec. 3(33).
Committee “maintained’ the plan. In determining whether the committee maintained the plan, the appeals court initially noted that the Oxford dictionary defines the term ‘maintained’ as “to care for (property) for purposes of operational productivity.” The Tenth Circuit has similarly explained that a plan is maintained by a principal purpose organization if the organization “cares for the plan for purposes of operational productivity (Medina v. Catholic Health Initiatives, CA-10 (2017), 877 F. 3d 1213).
The appeals court found that the committee had sole responsibility for the administration of the plan and was empowered with all the discretionary power and authority necessary to carry out the provisions of the plan. Accordingly, the court concluded that the committee maintained the plan.
The employee countered that, in order for the committee to actually maintain the plan it need to be empowered with ultimate responsibility for providing benefits. The employee, specifically, relied on the separate definitions of “administrator” and “sponsor” provided in ERISA Sec. 3(16). Pursuant to the employee’s statutory interpretation, plan sponsors have the power to adopt, modify or terminate the plan. Sponsors, the employee contended, may delegate fiduciary powers, but retain ultimate responsibility for the plan because they are not authorized by ERISA to relinquish the power to adopt, modify, or terminate the plan.
The court dismissed the employee’s position as not sufficiently compelling to warrant a departure for the plain meaning of the term “maintain.” The employee’s interpretation, the court explained, would vitiate the requirement that a principal purpose organization be controlled by a church. Applying the ordinary meaning of the term, therefore, allowed the court to follow the standard rule of statutory interpretation and give effect to every clause and word of the ERISA provision.
Committee was a principal purpose “organization.” In next determining whether the benefits committee was an “organization” maintaining the plan, the court followed the trial court’s adopting of the dictionary definition of the term, as “an administrative and functional structure,” or a “group of people who work together in an organized way for a shared purpose.” The appeals court, noting that the committee consisted of five members that provide fiduciary oversight for Mercy’s employee benefit programs and retirement plan, concluded that it was group that worked together for a common purpose and, thus, was an “organization,” for purposes of the principal purpose exemption.
Source: Sanzone v. Mercy Health (CA-8).
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