U.S. District Judge Michael A. Shipp of the U.S. District Court for the District of New Jersey determined a church plan must be established by a church per ERISA Section 3(33)(A). Shipp also found case law used by Saint Peter’s in its arguments to be unpersuasive, and said the court could not give deference to a private letter ruling by the Internal Revenue Service (IRS) which determined Saint Peter’s pension plan is a church plan. 

Shipp said it is clear Congress intended for a church plan to be established by a church. He pointed out ERISA Section 3(33)(A) says “[t]he term ‘church plan’ means a plan established and maintained . . . by a church or by a convention or association of churches . . . .” Shipp noted that in subsection C(i), Congress expanded the maintenance requirement outlined in subsection A to include plans maintained by a tax-exempt organization; however, the statute still requires that the plan be established by a church or a convention or association of churches. “In other words, if a church does not establish the plan, the inquiry ends there. If, on the other hand, a church establishes the plan, the remaining sections of the church plan definition are triggered,” Shipp wrote in his opinion.

According to Shipp, if the court were to accept Saint Peter’s interpretation, any tax-exempt organization can establish its own pension plan, maintain it, and then employ the church plan exemption by purporting to be controlled by or associated with a church. “Defendants’ contention in this regard is unreasonable. The Court cannot conclude that Congress intended to create this slippery slope, especially considering that the point of enacting ERISA was to promote the interest of employees and their beneficiaries.” 

Shipp found the case law relied upon by Saint Peter’s, Thorkelson v. Publishing House of Evangelical Lutheran Church, is unpersuasive. InThorkelson, plaintiffs made the same arguments—that the benefit plan for defendant Augsburg Fortress Publishers (AFP), a non-profit publisher for the Lutheran Church, was not a church plan because it was sponsored by AFP. However, the Thorkelson court concluded that AFP’s plan was a church plan exempt from ERISA. Shipp said the court focused its statutory analysis on whether the plan was sponsored by a tax-exempt entity that is controlled by or associated with a church and did not apply ERISA Section (33)(A), which requires a plan to be established by a church.

Shipp found a recent court’s ruling for the case Rollins v. Dignity Health is in accord with his decision (see “Court Weighs In on Church Plan Issue”). In that case, the U.S. District Court for the Northern District of California applied the same reasoning as Shipp to rule the Dignity Health pension plan is not a church plan.

Saint Peter’s argued that Thorkelson is in alignment with thirty years of judicial decisions (see “Church Plan Lawsuits Could Reverse 30 Years of Precedent”), but Shipp replied that none of these previous decisions undertook a detailed statutory analysis of the church plan definition as the judge did in the Rollins decision.

He also noted that both parties seek refuge in the legislative history by pointing particularly to comments made on the congressional floor that purportedly support their reading of the statute. However, he cited court findings that “where the text of a statute is unambiguous, the statute should be enforced as written and ‘[o]nly the most extraordinary showing of contrary intentions in the legislative history will justify a departure from that language,’” and “The law is what Congress enacts, not what its members say on the floor.”

According to the court opinion, for more than thirty years, Saint Peter’s pension plan was operated as an ERISA plan and complied with ERISA’s requirements regarding funding, reporting, and insurance premiums paid to the Pension Benefit Guarantee Corporation (PBGC)—and represented such to its employees via plan documents and other written materials. However, in 2006, Saint Peter’s filed an application for church-plan status with the IRS. The organization notified employees of its application for church-plan status in November 2011. On August 14, 2013, in a private letter ruling, and despite five pending lawsuits questioning other health care organizations’ church-plan status, the IRS concluded that Saint Peter’s plan is a church plan as defined by ERISA (see “Disagreement Voiced on IRS Church Plan Ruling”).

Shipp conceded that dozens of IRS private letter rulings have held that a church-related agency can establish its own church plan. In addition, the Department of Labor (DOL) has issued advisory opinions on church-related agencies, concluding that their plans are church plans. He noted that Advisory Op. 94-04A found “In accordance with Section 3(33)(C)(iii) . . . the Church is deemed the employer of these individuals for purposes of the church plan definition in section 3(33); and the Church, as employer, is deemed to have established and to maintain the Plans.”

Saint Peter’s argued that, “though not binding on the Courts, [these rulings] are entitled to deference in accord with their persuasive power” to the extent that they are reasonable and consistent with the text and legislative history. Defendants concede that courts and agencies interpret the church plan definition differently, but maintain that agency decisions are entitled to deference. In addition, defendants assert that congressional silence regarding the church plan definition gives agency decisions the force of law.

But, Shipp said although Saint Peter’s has received a private letter ruling, the court cannot give it deference for several reasons. For one, the ruling conflicts with the plain text of the statute and is therefore unreasonable, he noted, citing a court ruling which found “The judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.” Additionally, Shipp said, the IRS private letter ruling is conclusory, lacking any statutory analysis, and cannot be used as precedent because the ruling was issued in a non-adversarial setting based on information supplied by Saint Peter’s. 

He added courts have long held that congressional silence, alone, in the wake of administrative rulings does not give the rulings the force of law. “The church plan definition has not been amended since 1980 and Defendants cannot now use congressional silence to turn agency rulings into law,” he wrote. 

According to Saint Peter’s, its plan is a church plan exempt from ERISA because it and its retirement plan committee, charged with maintenance of the plan, are controlled by and associated with the Roman Catholic Church, as outlined under ERISA Section 3(33)(C)(i), and its employees are considered employees of the Roman Catholic Church under Section 3(33)(C)(ii)(II). 

The plaintiff in the case, Laurence Kaplan, contends Saint Peter’s does not receive funding from the Catholic Church or other religious entities but, instead, relies on revenue bonds to raise money. His principal grievance is that Saint Peter’s is improperly maintaining its plan to the detriment of its employees, using church-plan status to evade ERISA’s various requirements including underfunding the plan by more than $70 million. He alleges various ERISA violations, including violations of requirements for reporting and disclosure, minimum funding, establishment of a trust, and fiduciary duties. 

Kaplan is seeking, among other things, an order declaring that the plan is not a church plan exempt from ERISA or, in the alternative, that the church plan exemption is an unconstitutional accommodation under the Establishment Clause. Since the court found the plan is not a church plan, it found it unnecessary to address a violation of the Establishment Clause of the First Amendment.

The opinion in Kaplan v. Saint Peter’s Health Care System is here.