Class Action Attack on Church-Affiliated Hospitals

Three nearly identical putative class action lawsuits have been filed by the same lawyers against church-affiliated hospitals in California, Michigan, and Pennsylvania.   Each case makes a bold and sweeping challenge to the “church plan” exemption under the Employee Retirement and Income Security Act (ERISA).  The lawsuits seek to involve tens of thousands of hospital employees and place at issue hundreds of millions of dollars in underfunded pension obligations. 

First, the plaintiffs contend that, under section 3(33)(A) of ERISA, only a plan established and maintained by a church, or convention or association of churches can qualify for the church plan exemption.

Second, the plaintiffs allege that under ERISA section 3(33)(C)(i), only a plan established for employees of a church (or a convention or association of churches) that is maintained by an organization whose principal purpose is the administration or funding of a retirement plan can qualify for the church plan exemption. 

Third, the plaintiffs contend that under ERISA section 3(33)(B)(ii), a plan is specifically excluded from the church plan exemption if less than substantially all of the plan participants are members of the clergy or employed by an organization controlled by or associated with a church (or a convention or association of churches).

If these arguments fail, the plaintiffs will argue that ERISA’s church plan exemption violates the United States Constitution’s ban on government accommodation of religion.  It certainly is possible that this attack could be broadened to focus on any entity that maintains a church plan considered exempt from ERISA.

The plaintiffs acknowledge that the IRS and Department of Labor, as well as some district courts, have interpreted the church plan exemption more broadly.  They trace the conventional interpretation to a 1983 IRS General Counsel Memorandum, which the plaintiffs contend wrongly concluded that a non-church entity could establish its own exempt church plan as long as the plan was managed by an organization associated with a church. 

Our Health Law, Employee Benefits and ERISA Litigation attorneys, who have experience defending against the plaintiff firms that file these cases, are closely monitoring developments and will endeavor to keep you advised.