Third Circuit Rules St. Peter’s Healthcare Retirement Plan is Not a Church Plan Exempt from ERISA

A federal appeals court has ruled that a pension plan established by St. Peter’s Healthcare System of New Brunswick, New Jersey does not qualify as a “church plan” exempt from the Employment Retirement Income Security Act (ERISA), the federal pension law that requires such plans to be fully funded and provides employees with certain rights related to benefit entitlements.

The unanimous decision, written by Judge Thomas Ambro, of the U.S. Court of Appeals for the Third Circuit on Dec. 29, 2015, upheld a U.S. District Court decision that St. Peter’s Healthcare System, which employs more than 2,800 people, was ineligible for the church-plan exemption because it was not established by a church.

St. Peter’s established its retirement plan in 1974 and for more than three decades operated the plan subject to ERISA, representing to its employees in plan documents and other materials that it was complying with ERISA. In 2006, St. Peter’s filed an application with the Internal Revenue Service seeking a determination that it was exempt for tax purposes.

In 2013, Laurence Kaplan, who worked for St. Peter’s from 1985 to 1999, filed a putative class action lawsuit on behalf of himself and other pension participants alleging that St. Peter’s failed to comply with various ERISA obligations in the years after the healthcare system applied for church-plan exemption, including by underfunding the pension plan by more than $70 million.

St. Peter’s Healthcare System moved to dismiss the lawsuit claiming that it qualified for the church plan exemption from ERISA. The District Court denied the motion and concluded that St. Peter’s could not establish a church plan because it is not a church. St. Peter’s subsequently appealed that decision to the Third Circuit.

In addition to rejecting the IRS’s interpretation of the church-plan exemption, the Third Circuit further noted that as of 2012, religiously affiliated hospitals accounted for seven of the nation’s 10 largest nonprofit healthcare systems and that to construe the church plan exemption to apply to such hospitals would defeat the purpose of ERISA. The Court also rejected St. Peter’s argument that the IRS interpretation was necessary to avoid entanglement in religion, noting that Congress regularly distinguishes between churches and church agencies.

As the decision noted, Kaplan v. St. Peter’s Healthcare System is part of a “new wave of litigation” throughout the nation challenging the exempt status of pension plans established by hospitals claiming a religious affiliation. Because the Third Circuit has determined that the St. Peter’s plan is not an exempt church plan, it must now comply with all of ERISA’s protections which require, among other things, that the Plan be fully funded.

The plaintiffs in Kaplan v. St. Peter’s Healthcare System are represented by Lynn Sarko, Ron Kilgard, and Havila C. Unrein of Keller Rohrback L.L.P. and Karen L. Handorf, Mathew A. Smith, Monya M. Bunch and Michelle C. Yau of Cohen Milstein Sellers & Toll PLLC.

 

Case Documents

Third Circuit Opinion – 12/29/2015

If you are a participant in the St. Peters plan or any other church plan and would like further information about our practice, please contact attorneys Laura Gerber or Havila Unrein at 800.776.6044 or via email at info@kellerrohrback.com.


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