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One to Keep An Eye On: Saint Peter's Healthcare System v. Kaplan & Advocate Health Care Network v. Stapleton


As with many labor and employment law related cases being litigated around the country, there are always a few that stand out.  This are two to keep an eye on.


Note, I normally reserve "One to Keep An Eye On" posts for a single case, piece of legislation, or emerging labor and employment law matter.  However, given that these two cases from the Third and Seventh Circuits deal with identical issues, I think it is appropriate to make this a joint post.


Saint Peter's Healthcare System v. Kaplan

Facts:  Since 1974, Congress has exempted "church plans" from the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").  According to Congressional notes, ERISA regulation of church plans would represent "an unjustified invasion of the confidential relationship that is believed to be appropriate with regard to churches and their religious activities."  ERISA defined an exempt "church plan" as "(i) a plan established and maintained for its employees by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1954, or (ii) a plan described in subparagraph (C)."

In this case, Saint Peter's Healthcare System ("Saint Peter's") is a nonprofit hospital system owned and controlled by the Roman Catholic Diocese of Metuchen.  In 1974, Saint Peter's launched a non-contributory defined benefit retirement plan.  In 2013, the IRS issued a private letter ruling and held Saint Peter's plan had been a church plan, retroactive to 1974.

In 2013, a former Saint Peter's employee filed a putative class action against Saint Peter's on the grounds that Saint Peter's plan was not established by a church and therefore not eligible for the "church plan" exemption.  The District Court disagreed with Saint Peter's argument that the plan was a "church plan" because it was maintained by a qualifying church-affiliated organization.  The Third Circuit affirmed the lower court's ruling and held that "church plans" must be established only by churches.

The Main Issue:  Does the "church plan" exemption of ERISA apply so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization or does the exemption apply only if, in addition, a church initially established the plan?

Current Status:  A writ of certioriari was filed with the United States Supreme Court on July 18, 2016 following the ruling from the Third Circuit Court of Appeals.

Looking Ahead:  Interesting to see how this one plays out, given that Advocate Health Care Network v. Stapleton presented a similar issue.  I would be surprised if the Supreme Court did not hear this case (and Advocate), given that two different circuits have recently written opinions which appear to conflict with the "church plan" exemption, not to mention the confusion that will likely result from these two recent decisions.


Advocate Health Care Network v. Stapleton

Facts:  Since 1974, Congress has exempted "church plans" from the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA").  According to Congressional notes, ERISA regulation of church plans would represent "an unjustified invasion of the confidential relationship that is believed to be appropriate with regard to churches and their religious activities."  ERISA defined an exempt "church plan" as "(i) a plan established and maintained for its employees by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1954, or (ii) a plan described in subparagraph (C)."

In this case, Advocate Health Care Network ("Advocate") is a nonprofit corporation affiliated with the Evangelical Lutheran Church in America ("ELCA") and the United Church of Christ ("UCC").  Both the ELCA and UCC exert considerable control over Advocate:  Advocate's Board of Directors cannot take any action without approval of at least one director from each church, both churches have publicly acknowledged that Advocate is integral to the ministry of the churches, and Advocate is listed as an "affiliated" or "related" organization by both churches.  

Advocate sponsors a benefit pension plan for its employees' retirement.  The plan has operated as an exempt "church plan" since at least 1980.  In 1998, the IRS issued a private letter ruling and held Advocate's plan was a "church plan".

In 2014, a putative class action was filed against Advocate on the grounds that Saint Peter's plan was not established by a church and therefore not eligible for the "church plan" exemption.  The district court held that Advocate's plan was not a "church plan" because neither "a church [n]or an association of churches initially established [Advocate's] pension plan."  The Seventh Circuit Court of Appeals affirmed the lower court's ruling and held that "church plans" must be established only by churches.

The Main Issue:  Does the "church plan" exemption of ERISA apply so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization or does the exemption apply only if, in addition, a church initially established the plan? 

Current Status:  A writ of certiorari was filed with the United States Supreme Court on July 15, 2016 following the ruling from the Seventh Circuit Court of Appeals.

Looking Ahead:  As with the Saint Peter's case, I would expect the Supreme Court will likely take this case as well.  Given that both cases deal with identical facts and issues, it would not surprise me if the Supreme Court combined the cases.  These are both two cases to keep a close eye on.

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