Compliance

Settlement Reached By Holy Cross ‘Church Plan’

While several church plan challenges wait on SCOTUS review, another has been settled.

By John Manganaro editors@strategic-i.com | March 13, 2017
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A settlement agreement reached in the case Butler vs. Holy Cross Hospital will result in $4 million being paid to plan participants and their attorneys.  

The plaintiffs had alleged that their employer’s retirement plan cannot be considered a church plan within the meaning of Employee Retirement Income Security Act (ERISA) Section 3(33)—and thus that the plan should be subject to the provisions of Title I and Title IV of ERISA.

Plaintiffs said the plan was terminated as of September 1, 2015, at a time when its assets were insufficient to pay for all accrued benefits. They suggested the plan paid only about 50% of its liabilities upon termination and further alleged the plan was in 2013 improperly transferred to an entity that lacked sufficient assets or ability to fund the plan. If the plan was not considered a church plan, plaintiffs argued, these actions would have been barred under ERISA.

In their initial complaint, plaintiffs alleged violations of ERISA’s required minimum funding standards under Section 302;  failure to establish the plan pursuant to a written instrument under Section 402; failure to establish a trust meeting the requirements of Section 403; failure to meet anti-cutback provisions under Section 402(g) and (f). Additional breaches were alleged under ERISA 404(a), 406(a) and 406(b).

The text of the settlement agreement shows the influence of another case citing the church plan exception, Stapleton v Advocate Healthcare NetworkThat case was appealed to the Seventh U.S. Circuit Court of Appeals after a federal district court ruled in favor of the plaintiffs and found that only an actual church can establish a church plan. In March 2016, the Seventh Circuit issued its ruling in that case and held that “a church plan must be established by a church, and a church plan must be maintained either by a church or by a principal-purpose organization.”

That case has been appealed to the U.S. Supreme Court and has been granted a review by the top court, which is still pending.

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