St. Elizabeth’s Wins Suit Challenging Church Plan Status

Using other court decisions, including one from the Supreme Court, the medical center's plan was found to fall under the "church plan" definition in ERISA.

In a lawsuit challenging the church plan status of the St. Elizabeth Medical Center Employees’ Pension Plan, a federal court judge has granted summary judgement to the medical center defendants.

The court previously ruled that the plaintiffs in the case had standing to sue on behalf of the plan since they had shown a substantial risk of harm by the plan’s underfunding. U.S. District Judge David L. Bunning of the U.S. District Court for the Eastern District of Kentucky also dismissed claims against plan committee members regarding required reporting under the Employee Retirement Income Security Act (ERISA).

In his latest opinion, Bunning cites the U.S. Supreme Court decision regarding various church-plan cases in which it said ERISA Section 3(33) means that a church plan falls into the ERISA exemption if the plan is established and maintained by a church or association of churches or maintained by an organization with the principal purpose of administering or funding the plan. The defendants argue that the at-issue plan committee is such a principal-purpose organization.

According to Bunning, this principal-purpose organization statutory language has been distilled into a three-part test, which other courts have used to determine whether a plan maintained by a principal-purpose organization falls within the church-plan exemption:

  • Is the entity a tax-exempt nonprofit organization associated with a church?
  • If so, is the entity’s retirement plan maintained by a principal-purpose organization? That is, is the plan maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees?
  • If so, is that principal-purpose organization itself associated with a church?

Bunning found the first portion of the three-part inquiry is satisfied. Among other things, he cited that St. Elizabeth is a tax-exempt nonprofit entity; St. Elizabeth was founded in 1861 by the Franciscan Sisters of the Poor and the property was acquired “in the name of this Catholic religious order;” sponsorship of St. Elizabeth was transferred to the Diocese of Covington in 1973, and continues to this day; the Bishop of Covington is the only person with “the authority to dispose of . . . hospital properties upon dissolution of St. Elizabeth;” and the governing documents of St. Elizabeth give the Bishop of Covington control over aspects of St. Elizabeth’s operations and indicate clear association with the Catholic Church.

The plaintiffs suggest that the plan committee cannot be a principal-purpose organization because it is not, by definition, an “organization,” according to the court opinion. However, Bunning looked to dictionary definitions of “organization” and found definitions merely require a group of people with a specific purpose. Bunning found that the plan committee meets the two requirements necessary for an entity to be an “organization” within the scope of the ERISA exemption. Bunning also used dictionary definitions of “maintain” and language of the plan documents to determine that the committee maintained the plan.

To determine whether the committee is a principal-purpose organization, Bunning looked at the language of the exemption which indicates that a principal-purpose organization is an “organization” with the “principal purpose” or “function” of “administering” or “funding” a retirement-benefits plan. While the defendants admit that the committee does not fund the plan, Bunning found that that the committee’s principal purpose is “administration” of the plan. Looking to the plan documents, as he did in determining whether the committee “maintains” the plan, Bunning concluded that the committee’s principal purpose is “administration.” The plan document itself indicates that the objective and goal of the committee is to “manage and administer the plan.” The resolution creating the committee indicates the same—that the objective of the committee is to “administer” the plan.

“As the Court previously found that St. Elizabeth is associated with the Catholic Church, and the Committee is an ‘internal subset’ of St. Elizabeth, the Court also finds that the Committee is associated with the Catholic Church and, therefore, satisfies the third prong of the test,” Bunning wrote in his opinion. He found this conclusion is also supported by plan documents governing the committee, which say: “[t]he Committee shall consist of not fewer than three (3) members who believe in and follow the tenets of the Catholic Church,” and indicate its role is to “administer the St. Elizabeth Medical Center Employees’ Pension Plan in a manner consistent with the tenets of the Catholic Church.”

Bunning dismissed other claims because it found ERISA does not apply to the plan.