When is a Group Long-Term Disability Insurance Plan Not an ERISA Plan? When it’s Established and Maintained by a Church to Qualify as an ERISA-exempt Church Plan – That’s When

You know church can be very good for you, but you probably never contemplated that church could help you in ways other than spiritually.  Let’s say you find yourself in this position:  you become disabled,  work for a church-related employer and now want to make a disability claim under your short-term disability and/or long-term disability insurance policy.  You wonder: is my claim covered by ERISA or will I have those really good state law remedies because ERISA does not apply?  Your question was recently answered by the Ninth Circuit Court of Appeals, albeit in a pension plan case.

“Church plans” are exempt from the federal regulatory requirements of ERISA.  However, language contained in the relevant ERISA statute left the rules what constitutes a “church plan” open to multiple interpretations.  The Ninth Circuit closed the door to multiple interpretations and clarified exactly what is required to qualify as a church plan exempt from the regulatory requirements of ERISA.

Pursuant to 29 U.S.C. § 1002(33)(A), the term “church plan” means a plan established and maintained by a church or by a convention or association of churches.  However, 29 U.S.C. § 1002(33)(C) confuses these two seemingly straightforward requirements by providing that a plan established and maintained by a church or a convention or association of churches includes a plan maintained by a “principal-purpose organization,” the principal purpose or function of which is the administration of funding 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 of churches.  This raises the question of whether the requirement that a plan be established by a church is eliminated by § 1002(33)(C) since it can be argued that it only requires a plan be maintained by a principal-purpose organization.  In other words, does this mean the plan must be established by a church to be eligible for the church plan exemption, or does it mean the plan qualifies for the church plan exemption even if it is established by an organization other than a church whose principal purpose is religiously-affiliated and who maintains the plan?

In Rollins v. Dignity Health, No. 15-15351, 2016 WL 3997259 (9th Cir. 2016), employees of a nonprofit hospital system, Dignity Health, established by Catholic Sponsoring Congregations, received pension benefits through a single pension plan maintained by Dignity Health, which adopted a resolution to treat the plan as a church plan.  Ms. Rollins, who was a participant in the plan, filed a putative class action against Dignity Health alleging its plan was not a church plan and it violated numerous ERISA requirements.  Dignity Health conceded that the plan did not comply with ERISA but alleged that it did not need to since it qualified for the church-plan exemption even though its plan was not established by a church.  Dignity Health contended that pursuant to 29 U.S.C. § 1002(33)(C), a church plan need not be established by a church if it is maintained by a principal-purpose organization.  The district court granted partial summary judgment against Dignity Health holding that a plan must be established by a church and maintained by either a church or a principal-purpose organization to qualify for the church-plan exemption.  The district court then certified its order for interlocutory appeal given the substantial ground for difference of opinion and the Court of Appeals accepted jurisdiction.

The Court concluded that the phrase “includes” contained in 29 U.S.C. § 1002(33)(C) (a plan established and maintained by a church or a convention or association of churches includes a plan maintained by a “principal-purpose organization”), serves only to broaden the definition of organizations that may maintain a church plan and does not eliminate the requirement that a plan must be established by a church.  The Court noted that the legislative history revealed that Congress inadvertently excluded plans maintained by church-controlled or church-affiliated pension boards rather than the churches themselves, so Congress relaxed this requirement by adding the language in § 1002(33)(C) to address only the problem of maintenance by church-controlled or church-affiliated pension boards.

The Court was unpersuaded by Dignity Health’s argument that establishment by a church is not required since other federal statutes support that a church plan does not need to be established by a church, noting that the statute at issue specifically requires church establishment and it would not construe terms to have the same meaning when Congress explicitly defined the terms differently.  The Court concluded that its reading of the statute did not involve a constitutional Establishment Clause violation or a Free Exercise violation and it affirmed the district court’s ruling and remanded the action for further proceedings.

Now that you know about Rollins, you can look to see if your group long-term disability or life insurance plan was established and maintained by a church organization, so you can now determine if you will be facing that beast called ERISA.

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