U.S. District Judge Avern Cohn of the U.S. District Court for the Eastern District of Michigan found the retirement plans of Ascension Health Alliance entities qualify for “church plan” status under the Employee Retirement Income Security Act (ERISA). In contrast to two other rulings handed down so far among six cases (see “Sixth Church Plan Challenge Added to List”), Cohn held a plan need not be established by a church in order to qualify as a church plan.

Cohn also held that the plans, as a consequence of the management structure of Ascension Health Alliance, are church plans because Ascension Health Alliance is controlled by and associated with the Roman Catholic Church. He dismissed lead plaintiff Marilyn Overall’s ERISA claims. “This conclusion is consistent with ERISA’s statutory language, legislative history and relevant agency interpretations. Because they are church plans and exempt from ERISA, plaintiff’s ERISA claims fail to state a viable claim for relief,” Cohn wrote in his opinion.

Cohn addressed recent court rulings contrary to his. In Rollins v. Dignity Health, the district court concluded that only a church can establish a “church plan” under ERISA Section 3(33), 29 U.S.C. Section 1002(33). That court determined that the Internal Revenue Service (IRS) and prior cases erred in reading that text of the statute. Similarly, in Kaplan v. Saint Peter’s Healthcare, the district court held that only a church may establish a church plan (see “Another Court Rejects Pension’s ‘Church Plan’ Status”).

Cohn said those courts wrongly interpreted the interplay of the subsections of ERISA Section 3(33). Sub section (A) says, “The term ‘church plan’ means a plan established and maintained . . . for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of title 26.” Cohn noted that this section clearly provides that a plan established and maintained by a church is a church plan.

Subsection (C) says church plan "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 . . . if such organization is controlled by or associated with a church . . .."

“In Dignity Health and Saint Peters, the district courts interpreted section (A) as a gatekeeper of section (C),” Cohn explained. “That is, these courts concluded that section (A) sets the standard—only a church can establish a church plan—and section (C) only describes how a plan under section (A) can be maintained. The problem with this interpretation is that section (C) uses the word ‘includes’ not ‘subject to.’ Section (C) says that ‘A plan established and maintained . . . by a church includes a plan [meeting the requirements of section (C)(I)]. As Ascension puts it ‘under the rules of grammar and logic, A is not a ‘gatekeeper’ to C; rather if A is exempt and A includes C, then C is also exempt.’”

Cohn continued: “This is how the Court interprets section (C). In other words, a church plan may include a plan that meets the requirements of section (C). Section (C) requires that the plan maintained by an organization that is either (1) controlled by or (2) associated with a church or convention of churches. To find otherwise would render section (C) meaningless.”

He also noted the phrase “associated with a church or convention or association of churches” means an organization that “shares common religious bonds and convictions with that church or convention or association of churches,” and Section D of the statute provides the church an opportunity to cure any failure to meet that requirement.

In his opinion, Cohn gave deference to Congressional notes from before the amended definition of church plan was codified in ERISA Section 3(33), including a citation from “Senator Talmadge” noting organizations that care for the sick and needy or provide instruction can be essential to a church's mission and should fall under the exemption, and a citation from “Senator Javits” noting exemption is being expanded to schools and other church-related institutions.

Also important, according to Cohn, is that the "church plan" exemption is codified in parallel form in the Internal Revenue Code (IRC) at Section 414(e). He cited an IRS General Counsel Memo in which the agency recognized that its "worshipful activity" requirement had been legislatively overruled and that the "church plan" exemption now includes plans sponsored by nonprofit organizations that are "controlled by or associated with a church," which the IRS memorandum applied to include hospitals operated by Roman Catholic religious orders. “The IRS has followed this rule for more than 30 years,” Cohn wrote (see “Church Plan Lawsuits Could Reverse 30 Years of Precedent”).

As evidence that Ascension was controlled or associated with a church, Cohn noted first that Ascension Health Ministries is an organization within the Roman Catholic Church, created by the Roman Catholic Church's canon law as a "Public Juridic Person"—an organization afforded the right to own and operate real and personal property under the auspices of the Church. In addition, currently five Catholic religious orders are the "Participating Entities" that appoint the members of Ascension Health Ministries. These members have religious obligations imposed by the canonical statutes to maintain the Roman Catholic Church's control over Ascension and its system entities, so that Ascension and the system entities may remain a healing ministry carrying out the apostolic works of the Roman Catholic Church. Finally, the articles of incorporation and bylaws of each entity affirm its obligation to act in conformity with the teachings of the Roman Catholic Church, including the Ethical and Religious Directives for Catholic Health Care Services.

In the lawsuit, Overall submits claims for equitable relief under ERISA Section 502(a)(3) against Ascension, and all of its retirement plans, for failure to provide notice of reduction in benefit accruals under ERISA Section 204(h), for violation of reporting and disclosure provisions under ERISA, for failure to provide minimum funding under ERISA, for failure to establish the plans pursuant to a written instrument meeting the requirements of ERISA Section 402, and for failure to establish a trust meeting the requirements of ERISA Section 403. She also submits a claim for a civil money penalty under ERISA Section 502(a)(1)(A) against Ascension Health for breach of fiduciary duty against all defendants.

The IRS issued a private letter ruling granting Ascension church plan status in July 1993.

Contingent on the court finding Ascension did qualify for church-plan status—which it did—Overall also filed a claim for declaratory relief that the church plan exemption violates the Establishment Clause of the First Amendment of the Constitution. But, Cohn found no evidence to suggest Overall would have a better funded pension if the court were to strike down the church plan exemption provisions of ERISA, or the exemption as applied to Ascension, so Overall failed to show she has suffered a concrete harm, or that the relief she seeks would redress an alleged injury. He dismissed the claim for lack of standing.

The court’s opinion in Overall v. Ascension is here.