ERISA "Church Plan" Exemption Continues To Be Explained In the Courts

Written exclusively for My Community Workplace for Religious Organizations

A lawsuit that began in 2014 receives another California district court decision, this time dismissing many of the defense's motions for summary judgment.

The Rollins v. Dignity Health case questions the validity of the health clinic's argument that its pension plan is a "church plan" as defined by the Employee Retirement Income Security Act (ERISA).

The original lawsuit went to the U.S. Supreme Court, which ruled that "church plans" include those maintained by principal-purpose organizations. However, because the court did not determine whether Dignity Health qualifies as a principal-purpose organization, the case went back to the district court, where the plaintiffs amended their complaint.

The latest district court decision is in response to the defendant's motion for summary judgment. The court confirmed that organizations affiliated with a church can claim exemption from ERISA guidelines as long as they satisfy three provisions. "First, the entity must be a "tax-exempt nonprofit organization associated with a church." Second, the retirement plan must be maintained by a principal-purpose organization, meaning that the plan must be "maintained by an organization whose principal purpose is administering or funding a retirement plan for entity employees." Third, the principal-purpose organization itself must be controlled by or associated with a church."

The litigation continues because the plaintiffs have filed another amended complaint, continuing to allege that Dignity Health is not affiliated with a church. John Manganaro "Another District Court Decision for Dignity Health Church Plan Lawsuit" (Oct. 19, 2018).

Commentary and Checklist

Most legal complaints about mis-classifying an organization's pension plan as a "church plan" arises from larger church-affiliated organizations, like the health care system in the above case. The Supreme Court's ruling in the case confirms the interpretation that regardless of who established the plan, it still qualifies as a "church plan" as long as the entity maintaining the plan has a principle purpose to administer or fund the plan for employees of a church or church-affiliated organization.

Still at question is what criteria is required to be considered a principle-purpose organization. For this reason, those church-affiliated organizations who claim the ERISA exemption of "church plan" should carefully review their status with legal counsel, and consider electing ERISA status for their plans going forward. Not only can religious employers limit their risk by managing their pension plan under ERISA guidelines, but plans that follow ERISA regulations are exempt from complying with varying state or local laws concerning retirement plans. For some, this may be the more attractive option.

Whether or not your organization's retirement plan has ERISA status, you should consider the following suggestions to reduce the risks associated with retirement plan management:

  • Provide participants with information about the pension plan, including important information about plan features and funding.
  • Do not exclude older hires from participating in your plan just because they are close to retirement.
  • Include part-time employees who work at least 1,000 hours per year in the plan at a rate proportional to benefits received by full-time employees.
  • Make sure the plan immediately vests employee contributions, and either 100 percent vests employer contributions no later than five years after hire, or provides a graduated vesting schedule with 100 percent vesting within seven years.
  • Allow employees to access their retirement by the age of 65 (or the normal retirement age for the industry if earlier), or, if hired after the age of 55, within 10 years of service or after termination.
  • Provide employees with benefits within 60 days after the end of the plan year in which the employee meets the requirements to retire.
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