In Stapleton v. Advocate Health Care Network, 2016 WL 1055784 (7th Cir. March 17, 2016), the U.S. Court of Appeals for the Seventh Circuit joined the Third Circuit (Kaplan v. St. Peter's Healthcare Sys., 810 F .3d 175 (3d Cir.2015)) in holding that a benefit plan established by a church-affiliated organization such as a hospital is not exempt from ERISA. The court recognized the growing number of cases on this issue, the majority of which have concluded the statutory requirements for the church plan exemption were not met.
ERISA defines a "church plan" in 29 U.S.C. §§ 1002(33)(A) as a "plan established and maintained" by a church. In other words, "(1) a church must first create or establish the plan and then (2) maintain the plan." If the statute ended there, there would be no doubt that Advocate would lose because its plan was established by its corporate predecessor and not by a church. However, the statute further states:
(i) A plan established and maintained for its employees (or their beneficiaries) 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.
29 U.S.C. § 1002(C)(i) (all emphases supplied). Based on that language, the court acknowledged that a church plan could include a plan maintained by a church-affiliated organization. However, in interpreting the statute, the word "includes" does not alter the primary definition of church plans but merely sets forth a subset of such plans. The court parsed out the issue further:
The statute simplied: A church plan includes a plan maintained by a church affiliated organization
Advocate's position on what this means: A plan established and maintained by a church includes a plan established by a church-affiliated organization (and maintained by either a church or a church affiliated organization).
The plaintiffs' position: A plan established and maintained by a church also includes a plan established by a church but maintained by a church-affiliated organization.
The court determined the plaintiffs interpreted the statute correctly; and that the dual requirement that the plan be both established and maintained by a church was correct. Otherwise, if the exemption encompassed plans maintained by a church-affiliated organization, it would render the "established by a church" requirement of subsection (33)(A) meaningless.
Although earlier cases addressing the limits of the church plan exemption focused on whether the plan was sufficiently associated with a church, the Seventh Circuit was critical of those rulings for glossing over the language of the statute. And the court recognized that because ERISA is a remedial statute, its protections should be liberally applied to protect workers' promised retirement savings. Indeed, the court identified examples of hospitals that had claimed church-plan exemptions that left their retirement plans underfunded and uninsured by the Pension Benefit Guaranty Corporation.
The Ninth Circuit has also accepted review of a church plan case, but it is doubtful that it will reach a conclusion that differs from the other courts of appeals. Although this ruling was primarily applicable to retirement benefits and went against the church-affiliated hospital system, the decision has seemingly perverse implications that favor such employers and the companies that insure their employee benefits. If this ruling had gone the other way, welfare benefit programs that offer health and disability benefits would have been exempt from ERISA and claimants would have been able to pursue jury trials and extra-contractual damage claims in challenging benefit denials. However, since it is now clear that the benefit programs offered by the church-affiliated hospitals are not church plans, the ERISA law insulates the hospitals and their insurers from state court procedures and remedies, as well as jury trials as the law now stands.