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ERISA "Church Plan" Exemption Found to NOT Exist When Pension Plan Had Not Been Originally Established By a Church


Rollins v. Dignity Health - Ninth Circuit Court of Appeals


Facts:  In the 1980's, the Sisters of Mercy Congregations established nonprofit hospital systems.  In 1986, the two systems were merged to form Catholic Healthcare West ("CHW").  Employees in the CHW system received pension benefits.  Starla Rollins ("Rollins") worked as a billing coordinator for San Bernardino Community Hospital which became affiliated with CHW and had adopted the pension plan. 

Rollins filed a putative class action on the grounds that Dignity Health did not qualify for a "church exemption" under the Employee's Retirement Income Security Act ("ERISA") and therefore had improperly maintained its pension plan in violation of ERISA.  Dignity Health acknowledged the plan did not comply with ERISA but stated that plan did not need to because it qualified for the "church plan" exemption.  The district court held that Dignity Health's pension plan was not established by a church, or by a convention or association of churches, and therefore did not qualify for a "church plan" exemption. 

Holding:  The Ninth Circuit Court of Appeals began its analysis of the issue with a nod to its belief that in order to qualify for the "church plan" exemption under subparagraph (C)(i) of ERISA, a plan must have been established by a church and maintained either by a church or by a principal-purpose organization.  

The Court acknowledged that there are two possible readings of subparagraph (C)(i).  Under the first interpretation, a plan need only be maintained by a principal-purpose organization to qualify for the "church plan" exemption.  Accordingly, under this viewpoint, a plan maintained by a principal-purpose organization qualifies for the "church plan" exemption even if it was established by an organization other than a church.  As for the second interpretation, maintenance by a principal-purpose organization is the equivalent of maintenance by a church.  It then follows that under this reading, the "church plan" exemption requires the plan to be established by a church.

After considering the legislative history of ERISA and the language of subparagraph (C)(i), the Court held "the more natural reading" was that the "church plan" exemption required required that the pension plan actually be established by a church.

Judgment:  The Ninth Circuit Court of Appeals affirmed the lower court's ruling that the "church plan" exemption of ERISA applied only when the plan was established by a church. 

The Takeaway:  Last week, I had noted two writs that had been filed with the United States Supreme Court that dealt with similar facts and issues in regard to interpretation of the "church plan" exemption.  It looks like the Ninth Circuit has agreed with the interpretation adopted by both the Third and Seventh Circuits on this issue.  It is interesting to note in this case, the Ninth Circuit did not give the IRS ruling on this matter much weight.  (In 1983, the IRS had stated its opinion that pension plans could qualify for the "church plan" exemption if they were maintained by a church-affiliated principal-purpose organization.)  Of course, the IRS reached the opposite conclusion of the Ninth Circuit as a result of a different interpretation of ERISA.  

It would not surprise me if this case is also appealed to the Supreme Court as well.  Given that we have three different circuits that have reached the same conclusion on the "church plan" exemption, in conflict with what had been previously held for several decades, this case is one to keep an eye on. 

Majority Opinion Judge:  Judge Fletcher

Date:  July 26, 2016

Opinion:  hr.cch.com/ELD/RollinsDignity072616.pdf

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