Unsettled ‘Church Plan' Definition Contested; Speakers Debate Merits of Both Positions

The definition of a pension or welfare plan as a “church plan” that is exempt from the Employee Retirement Income Security Act is unsettled and ripe for court interpretation, according to panelists at a webinar.

“The plain language of the statute says that a church plan must be established by a church,” said Karen L. Handorf, a partner at Cohen Milstein Sellers & Toll PLLC in Washington, who represents plan participants in currently pending litigation involving church plans.

But David W. Powell, a principal at Groom Law Group Chartered in Washington, which has represented religiously-affiliated health-care organizations in the same litigation, disagreed.

“We believe, consistent with the judge in Overall, that the logic and the grammar of the statute support the defendants' position that they are church plans,” he said. Powell was citing the recent opinion in Overall v. Ascension Health, 2014 BL 148842 (E.D. Mich. 5/13/14), in which a federal district judge found that a pension plan founded by a nonprofit hospital corporation with ties to the Roman Catholic Church was a church plan and thus exempt from the requirements of ERISA.         

Handorf and Powell were speaking during an Aug. 14 webinar, Hot Topics for Church Plans: What You Needed To Know Yesterday, sponsored by the American Bar Association's Joint Committee on Employee Benefits.

Conflicting Statutory Language 

The panelists discussed the seemingly conflicting language present in the definition of a church plan in Section 3(33) of ERISA. Specifically, the panelists argued over the requirement in Section 3(33)(A) that defines a church plan as one that is “established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches.”

According to the panelists, the conflict comes from a later portion of the statute, Section 3(33)(C)(i), which states: “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.”

Handorf said that the “plaintiffs' contention is that subsection (C) doesn't change the basic requirement under subsection (A) that a church plan be established by a church.”

“All that it does is make a change to who can maintain a plan,” she said.

According to Handorf, the plaintiffs in current church plan litigation “believe that in order for the defendants' argument to work, you have to read out the requirement that the plan be established by a church.”

She added, “but that would make (33)(A) surplusage.”

Powell, however, focused on the different interpretations of the first sentence of subsection (C). “The crux of this argument is whether the first part of [subsection] (C)(i), up to the word ‘includes,' is a gatekeeper or whether it is treated as a sort of deeming, ‘treated as' verbiage,” he said.

Excerpted from a story that ran in Pension & Benefits Daily (8/19/2014).