This article is a reply and rebuttal to a recent article authored by Professor Norman Stein and published in the preceding edition of this quarterly newsletter. Professor Stein's article is titled "An Article of Faith: The Gratuity Theory of Pensions and Faux Church Plans." My response to Professor Stein's article can be summed up as follows: There is nothing "faux" about church plans established by a church-affiliated employer and maintained by a benefits committee appointed by that employer. In fact, as explained below, this was an intended result under the church plan definition as it was revised by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA").1
This article follows the same basic structure as Professor Stein's article. Following this brief introduction, the first section discusses the history of the church plan exemption--as seen through the eyes of someone who was involved in drafting the MPPAA revisions to the church plan definition, as outside counsel to one of the church benefit boards that was involved in that effort. The second section of the article recaps the recent judicial interpretations of the current version of the church plan definition and then moves on (in the third section) to discuss certain principles of statutory construction and their effect on the use of the legislative history underlying, and agency interpretations of, the MPPAA church plan definition. The brief concluding section of the article summarizes the views expressed herein.
Background on and History of the Church Plan Definition--An Inside Look
In order to understand and properly interpret the current version of the church plan definition, one must begin at, well . . . the beginning. That beginning for church plans is the enactment of the Employee Retirement Income Security Act of 1974 ("ERISA").2
ERISA, the most sweeping re-write of employee benefit rules in our nation's history, imposed comprehensive reporting and disclosure, eligibility, vesting, fiduciary duty and funding rules on retirement plans and added a benefit insurance program for benefits payable under defined benefit pension plans, administered by the Pension Benefit Guaranty Corporation.3 As Professor Stein notes in his article, governmental benefit plans and, key to this article, church benefit plans were exempted from the new ERISA rules.
Professor Stein briefly discusses in his article why Congress provided church plans with this exemption. Because the ongoing church plan status litigation focuses on the changes that MPPAA made to the church plan definition, it is not critical that the reason or reasons for originally granting that exemption are understood. What is, however, of great importance and essential to understanding the scope of the current church plan definition is that the exemption granted by Congress in 1974 quickly proved to be problematic for the church benefits community. This was because the original church plan definition (contained in ERISA section 3(33)) provided that, for any plan year beginning after December 31, 1982, the employee benefit plans of church "agencies" could no longer have church plan status.4 Although the term "agencies" was not defined in the statute, the church benefits community was concerned that the term covered any church-affiliated organization that was not a local house of worship, or "steeple," and thus meant that, effective with the 1983 plan year, the retirement and welfare benefit plans established by churches5 and in which agencies participated, and the benefit plans established by these "agency" employers, would no longer have church plan status.6
The language highlighted in the preceding sentence deserves elaboration because it is important to understand the factual background to which the MPPAA church plan definition revisions applied. In 1974, when ERISA was enacted, church benefit plans and programs were structured in two primary ways. In the case of a church whose polity was hierarchical, the church itself established the employee benefit plans in which "steeples" and agencies participated for the benefit of their workers, and typically all "steeples" and some if not all agencies were required to participate in them--going elsewhere for employee benefits was not an option. However, in the case of churches with congregationally-governed polities,7 agency employers (and even the "steeples" in most cases) were typically free to establish their employee benefit plans with any benefit plan provider of their choosing, which typically included a benefit board or program established by the church. The point is that, even in instances where an agency employer was served by a denominationally-created benefits board or program, the agency established its own benefit plans. That was true in 1974 and is true today--a point of concern to the church benefits programs of this country if, as recently determined by two federal judges, church plans cannot be established by church agencies, but only by churches.
The church benefits community felt that, first and foremost, this division of church employers ignored the historic boundaries established by denominations and faith groups and created two classes of church employers--those that could be in a church plan and those that could not. In addition, because the retirement plan assets of all church-affiliated employers within a particular denomination were typically invested in a common pool or pools, there was a question and concern about whether the assets of retirement plans of "steeples" could be commingled with the assets of retirement plans sponsored by agencies for investment purposes. This inability to commingle would have had a dramatic effect on the ability to provide clergy and church lay workers with a quality retirement program, because the retirement plan assets of the agencies and the revenue they generated were essential to creating the economies of scale needed to achieve this result. The point here is that the primary goal of the effort to amend the definition of "church plan" in ERISA section 3(33) was to preserve church plan status for the benefit plans of church "agencies."
In 1975, a coalition of the chief executive officers and program directors of a number of Protestant and Jewish denominational benefit programs formed an organization then known as the Church Alliance for Clarification of ERISA ("CACE").8 Following discussions among CACE benefit program representatives, attorneys who represented various church benefit plans and programs (including the author) set about to revise ERISA section 3(33)9 and address the problems it presented.10 Certain "ground rules" were set for drafting:
- It was the CACE drafters' understanding at the time that the Roman Catholic Church had signed off on the original church plan definition (set out in ERISA section 3(33)(A)), so it was decided that the "agency" problem would have to be solved by working around or with the existing subsection (A) text.11
- The new church plan definition needed to be drafted as broadly as possible, in light of the multiplicity of faith group polities and the unknown ways in which church benefit plans might be established or maintained. The CACE drafters understood the types of plans and programs maintained by CACE members--however, they wanted to be sure that the new church plan definition worked for all churches and church-affiliated organizations, whether or not represented at the drafting table--especially for those affiliated with the Roman Catholic Church.12
Armed with these and other principles,13 the CACE drafting team started its work.14
Because ERISA section 3(33)(A) was to be left intact, the drafters had two primary tasks: (1) to make sure that "agency" employees would be deemed to be church employees, and (2) to make sure that a plan administered by an incorporated church benefit board (or any other type of organization administering the plan, known or unknown to the drafters) would be treated as established and maintained by a church. The CACE drafters thought, until recently, that they had accomplished both tasks. As will be seen in connection with the discussion of the recent church plan status decisions, task number two lies at the heart of the current "What's a church plan?" debate.15
The MPPAA Church Plan Definition in the Courts
The Thorkelson Case and Its Aftermath
Until 2011, the church plan definition had never been closely analyzed by the courts.16 That changed with the Thorkelson decision.17 In Thorkelson, the plaintiffs alleged that the defined benefit pension plan maintained by Augsburg Fortress, the publishing house of the Evangelical Church in America, was not a church plan, arguing that the only plans that could be church plans were those that were multiple employer in nature and were maintained by an incorporated church pension board.18 Judge Michael Davis disagreed and held that the Augsburg Fortress pension plan was a church plan.19
Following the decision in Thorkelson, a series of church plan status lawsuits were filed, principally involving defined benefit pension plans20 maintained by several health care systems associated with the Roman Catholic Church.21 The allegations in each of lawsuits are substantially the same:
- Defendants violated the minimum funding, notice, written plan document, trust and fiduciary rules of ERISA and engaged in prohibited transactions;
- Defendants purposefully ignored ERISA requirements that are meant to protect plan participants by "improperly" claiming to be church plans and exempt from ERISA; and
- Plaintiffs claim underfunding, plus other unspecified damages.
The principal argument in each of these cases is that the IRS, DOL and courts have misinterpreted the church plan definition for 30 plus years, and that only those plans established by churches can be church plans--plans established by 501(c)(3) organizations that are controlled by or associated with a church cannot qualify. The plaintiffs in each case also argue that, even under the traditional IRS church plan definition interpretation, the defendants are not controlled by or associated with a church.22
Opinions have been handed down in four of these lawsuits to date. As will be seen, the judges authoring these opinions are not in agreement on how to interpret the church plan definition.
The Rollins Case
In late 2013, Judge Thelton Henderson ruled in Rollins v. Dignity Health on a motion to dismiss the case.23 Dignity Health's motion was predicated on its assertion that the pension plan it had sponsored and established was a church plan, and thus all of plaintiffs' ERISA claims should be dismissed. Judge Henderson denied Dignity Health's motion and, in doing so, determined that the Dignity Health pension plan was not a church plan because a benefit plan had to be established by a church to be a church plan within the meaning of the statute--and Dignity Health had not argued that it was a church.24
Judge Henderson's opinion misreads the church plan definition in two respects. First, Judge Henderson states that, if Dignity Health's interpretation of that definition is to be accepted, "all that is required for a plan to qualify as a church plan is that it meet [paragraph (C)(i)'s]25 requirement that it be maintained by a church associated organization . . . ."26 This is, however, not all that is required for a plan to be a church plan--the organization sponsoring the plan must also be controlled by or associated with a church so that its employees can be deemed to be church employees.
Judge Henderson also indicated that Dignity Health could not be an organization described in paragraph (C)(i) because Dignity Health's principal purpose or function was not the administration or funding of an employee benefit plan or program, as required by that paragraph. Dignity Health, however, did not purport to be an organization described in paragraph (C)(i) because it did not have to be. In its case, the "principal purpose or function" organization described in paragraph (C)(i) is a retirement plan committee appointed by Dignity Health whose principal purpose and function is the administration of the Dignity Health pension plan.27
The Kaplan Decision
Although practitioners representing church benefit plans and programs initially viewed Judge Henderson's decision in Rollins as aberrational and a misreading of the church plan definition, a similar decision handed down by Judge Michael Shipp in the church plan status case filed against Saint Peter's Healthcare System ("Saint Peter's") caused concern.28 Saint Peter's, a New Jersey-based health care provider, was sued on behalf of a class29 of participants and beneficiaries of a defined benefit pension plan sponsored by Saint Peter's. Judge Shipp denied the defendants' motion to dismiss, holding that the Saint Peter's pension plan was not a church plan under the church plan definition and noting with approval Judge Henderson's decision in the Rollins case.30
Judge Shipp's way of distinguishing Thorkelson provides another way of viewing the statutory construction argument made by the plaintiffs in this case and in the other ongoing church plan status cases. Judge Shipp stated that Thorkelson's "interpretation did not apply [ERISA section 3(33)(A)] which requires--from the outset--a plan to be established by a church."30 In fact, Judge Davis's opinion in Thorkelson did apply subsection 3(33)(A) to the facts there presented, but he did so by correctly interpreting how subsection (A) fits into the church plan definition. Subsection (A) does require a plan to be established and maintained by a church to be a church plan. However, ERISA section 3(33)(C)(i) states that "a plan established and maintained by a church" (the identical language used in subsection (A)'s general rule) includes a plan maintained by an organization that meets the other requirements of paragraph (C)(i). Stated differently, if one determines that an organization is described in paragraph (C)(i), then the plan maintained by that organization is treated as a plan described in subsection (A), for paragraph (C)(i) relates to both the "establish and maintain" requirement of subsection (A) and not only to the "maintain" requirement.32
Judge Shipp also noted that the construction of the church plan definition sought by the defendants ignored and would render superfluous subsection (A) of the definition.33 As noted in discussing the Rollins opinion, proving that a plan described in paragraph (C)(i) meets the "established and maintained" requirement of subsection (A) does not mean that plan is a church plan. It must also be shown that the organization sponsoring the plan is controlled by or associated with a church, or the other requirement in subsection (A) that the plan be maintained for church employees and their beneficiaries will not be met--and the plan will not be a church plan.
Judge Shipp also ruled on another important issue in the current church plan definitional debate--namely, whether a private letter ruling ("PLR") issued by the IRS on the church plan status of a particular employer's retirement plan is to be given deference in deciding how the church plan definition should be interpreted by a court. Saint Peter's had sought and obtained from the IRS a favorable PLR on the defined benefit pension plan it maintained, and argued that Judge Shipp should defer to the IRS's determination.34 As noted earlier, the IRS has issued literally hundreds of church plan PLRs in the past thirty plus years, all of which have followed a two-pronged analysis that the defendants in all the church plan status cases argue is the correct reading of ERISA section 3(33).35 After noting that it was not necessary to review the IRS PLR deference issue because he had determined that the meaning of the church plan definition was plain, Judge Shipp nonetheless took it up "not only because [Saint Peter's] had received an IRS private letter ruling on [the church plan status] issue, but because these rulings seem to be somewhat responsible for the overbroad application of the church plan exemption."36 After considering the standard established by the Supreme Court in the Chevron case,37 Judge Shipp determined that the IRS PLR issued to Saint Peter's should not be given deference.38
The Overall Decision
After suffering two losses, church plans made a comeback in Overall v. Ascension.39 In Overall, Judge Avern Cohn's decision was also issued in response to a motion to dismiss. After carefully reviewing the statute, its legislative history, and the DOL and IRS opinions and rulings on the statutory definition of a church plan, Judge Cohn agreed with the defendants' interpretation of that definition and squarely rejected the Rollins and Kaplan courts' interpretation.40 He succinctly summarized ERISA sections 3(33)(A) and (C) by stating that, in mathematical terms, "if A is exempt and A includes C, then C is also exempt."41 In reaching his conclusion, Judge Cohn also considered whether to give deference to IRS private letter rulings and determined that such deference was appropriate in this case. "This is particularly true," said Judge Cohn, "where the IRS rulings, in the Court's view, are consistent with the text of the statute."42 Judge Cohn determined that the Ascension pension plan is a church plan and dismissed the case.43
The Medina Case
We now come to the last and perhaps most interesting (from a procedural point of view) of the recent church plan status decisions, that of Medina v. Catholic Health Initiatives.44 In Medina, church plans first lost, then won, an important victory. Their initial loss came via an opinion filed in the case by Magistrate Judge Kristen Mix on July 9, 2014, in response to plaintiffs' motion for partial summary judgment. Magistrate Judge Mix agreed with the Rollins and Kaplan courts' determinations that, to be a church plan, the plan in question must be established by a church--and that Catholic Health Initiatives was not a church.45 Magistrate Judge Mix recommended that the plaintiffs' motion be granted in part and denied in part.46
As expected, Catholic Health Initiatives filed written objections to the Magistrate Judge's recommendations and, on August 26, 2014, Judge Robert Blackburn added the next twist to the church plan definition saga: he entered an order sustaining the defendants' objections to the Magistrate Judge's recommendations and denied the plaintiffs' motion for partial summary judgment.47 Judge Blackburn agreed with the Magistrate Judge that the statutory language of the church plan definition is plain and unambiguous, but concluded that it should be read in the manner the defendants asserted and not in the manner suggested by the plaintiffs. Judge Blackburn expressly rejected the approach espoused in Rollins and Kaplan and stated that the church plan definition did not require that a church plan has to be established by a church.48
Counting Thorkelson, in baseball parlance, we've completed five innings, the score is 3-2 in favor of church plans, and the game continues, with Chavies, Owens, Stapleton and Lann still scheduled to come to the plate.49 A statutory provision that the drafters thought was clear has proved to be anything but. In light of the radically differing interpretations of the church plan definition, it is important to look briefly at certain principles of statutory construction and how those principles affect the ability to use legislative history. Those principles also determine whether IRS private letter rulings and DOL advisory opinions granting church plan status should be given deference by a reviewing court.
Statutory Construction Principles, Agency Interpretations and the MPPAA Church Plan Definition
In Thorkelson, after a thorough review of the church plan definition case law, Judge Davis commented on the plaintiffs' argument that the MPPAA legislative history supported the assertion that the Augsburg Fortress pension plan was not a church plan:
The Court further finds that Plaintiffs' reliance on the legislative history of the 1980 amendments to ERISA is misplaced, as the statute's plain language does not support Plaintiffs' interpretation. See, e.g., Davis v. Michigan Dept. of the Treasury, 489 U.S. 803, 808, n. 3 (1989) (legislative history is irrelevant to the interpretation of an unambiguous statute).50
In Rollins, Judge Henderson noted that, if the meaning of the text of a statute is not plain, a court can look at traditional statutory construction principles and the statute's legislative history. Although the judge did look at certain principles of statutory construction and the legislative history of the church plan definition as revised by MPPAA, he nonetheless found the text itself to be "conclusive."51 In Kaplan, Judge Shipp found the defendants' interpretation of the statute to be "contrary to [its] plain text" and "that Plaintiff's interpretation of the church plan definition provides a common sense reading of the statute based on its plain text."52 In Overall, Judge Cohn was silent on the question of whether the church plan definition is plain and unambiguous but must not have thought it to be so, as his opinion covers the legislative history of the definition and the IRS interpretation of it. In Medina, the Magistrate Judge found ERISA section 3(33) to be "clear" and "unambiguous" in recommending that the trial judge determine that the Catholic Health Initiatives pension plan is not a church plan,53 while Judge Blackburn, when deciding not to follow the Magistrate Judge's recommendation, found (as noted above) the meaning of the church plan definition to be plain.54 We thus have three federal judges and a magistrate judge all finding the MPPAA church plan definition's meaning to be plain and the statutory language of it to be clear and unambiguous, but with radically different results.55
If the meaning of a statute is not plain or unambiguous, then a court can look to and rely on the statute's legislative history in interpreting it.56 The question of a statute's clarity, plain meaning and ambiguity is also important to determine when a court will defer to an agency's interpretation of a statute--a question that is of importance to the ongoing church plan definition litigation because the IRS (and, to a lesser extent, the DOL) has interpreted that definition in the manner all of the defendants involved in that litigation interpret it--and because the IRS has issued PLRs to at least two of the defendant health care systems determining that the retirement plans they sponsor are church plans.
Professor Stein provides a lengthy analysis of the legislative history underlying the MPPAA church plan definition. He argues that nowhere in the legislative history can one find a statement or language that expressly and explicitly authorizes a church agency to establish a church plan. However, what even a casual examination of the legislative history will disclose (and as Professor Stein's explanation of the legislative history indicates), Congress clearly intended to solve the church agency problem identified by CACE and revised the original church plan definition in a broad and comprehensive fashion to do so.57
One particular item of legislative history deserves mention, however. In his opinion in Kaplan, Judge Shipp indicated that a discussion of the legislative history of the church plan definition revised by MPPAA was not needed because the parties (both sides) had not made an "extraordinary showing of contrary intentions in the legislative history" and that it was therefore not appropriate to depart from the text of a statute he found to be unambiguous.58 However, in footnote four of his opinion, Judge Shipp noted that "in 1978, when Representative Barber B. Conable, Jr. introduced [the church plan legislation], the proposed language of what is now [paragraph (C)(i)] read, in pertinent part: 'A plan established and maintained by a church . . . shall include a plan established and maintained by an organization [described in paragraph (C)(i)] . . . .'"59 Judge Shipp then noted that the final MPPAA revisions to the church plan definition excluded the words "established and" before "maintained by an organization" and then seemed to argue that this somehow proves that church plans must be established by a church. However, rather than supporting the plaintiffs' argument in the case, the omission of the word "established" in fact supports the defendants' view of the church plan definition. The word "established" was removed before MPPAA's passage because the CACE drafters knew that, in many cases, plans maintained by organizations described in paragraph (C)(i) were not established by such organizations but were, as has been pointed out earlier, established by a church agency and only maintained by the paragraph (C)(i) organization. Rather than hurting the defendants' cause, the tidbit of legislative history noted by Judge Shipp supports it.
While the legislative history of the church plan definition does not explicitly address the issue which has become crucial to the ongoing church plan status litigation (namely, whether only a church can establish a church plan), the DOL advisory opinions and IRS PLRs which the agencies began to issue shortly after MPPAA's passage definitely do so, and interpret the statute in the manner in which all of the defendants argue it should be interpreted.
In 1984, the Supreme Court addressed the issue of when judicial deference should be provided agency interpretations of a statute and created what has become known as the "Chevron rule."60 The Chevron rule provides that, when a statute does not compel a particular disposition of an issue, a court can review an agency's formal interpretation of a statute that it administers and defer to any reasonable interpretation of that statute. The rule relates to "formal" agency interpretations--in 2000, and again in 2001, the Supreme Court clarified that Chevron deference applies only where an agency interpretation is the result of a formal rule-making process.61However, the Supreme Court has ruled that agency interpretations that are not the result of a formal and public process are reviewed under pre-Chevron principles set out in Skidmore v. Swift & Co., 323 U.S. 134 (1944).62 Skidmore states that agency determinations that are not entitled to Chevron deference are nonetheless "entitled to respect."
Courts have considered the following factors in determining whether particular agency determinations should be given deference under Skidmore:
- Whether a particular agency interpretation dealt with technical and complex matters that fall within an area of agency expertise;63
- Whether an agency's interpretation of a statute was well-reasoned;64
- Whether the agency interpretation was contemporaneous with the statute's enactment;65 and
- Whether the agency interpretation was longstanding or consistent.66
The CACE drafters believed, and continue to believe, that the church plan definition as revised by MPPAA is unambiguous and its meaning is clear--a church-affiliated employer that is not itself a church can establish a church plan as long as it is controlled by or associated with a church and the plan is maintained by an organization that meets the requirements of ERISA section 3(33)(C)(i). However, assuming a court finds that the definition is ambiguous, an IRS PLR determining that a particular plan is a church plan should be entitled to at least Skidmore deference. Church plan PLRs fall within an area that is unquestionably within the IRS's area of expertise and, in the case of the church plan definition, provide an agency interpretation of what seems to be proving to be a complex statute. IRS church plan PLRs are well-reasoned.67 Of perhaps most importance, they began to be issued shortly after the church plan definition was revised in MPPAA, and the IRS has consistently interpreted the definition for over thirty years. These PLRs should therefore be given deference by the courts if the church plan definition is found to be ambiguous.68
The church plan definition contained in ERISA section 3(33) cannot be properly interpreted without carefully considering the problem that the MPPAA revisions to the church plan definition were intended to address--namely, that the retirement and welfare benefit plans in which church agencies participated, and (most importantly for the ongoing church plan litigation) the benefit plans that were established by those agencies, would continue to be church plans. Thorkelson, Overall and Medina (and Judges Davis, Cohn and Blackburn) interpreted the definition as revised by MPPAA correctly. Rollins and Kaplan (and Judges Henderson, Shipp and Magistrate Judge Mix in Medina) got it wrong--along with Professor Stein. If Rollins and Kaplan eventually become the law of the land, then the CACE effort to address the agency problem created by the original ERISA church plan definition will have been for nought--because agencies then and agencies now routinely establish their own benefit plans. If a court is in doubt about the meaning of ERISA section 3(33), it should grant Skidmore deference to the church plan PLRs--because the church plan status PLRs issued by the IRS meet all of the factors noted above in spades.
The conclusion reached in Rollins and Kaplan (that church plans can only be established by a church) could also expose all of the benefit plans of church agencies (of all employer types, and not just church-controlled or associated health care systems) to significant tax liability under the Code and ERISA. If church plans cannot be established by agencies, Congress will have unwittingly created a trap for the unwary when it revised the church plan definition in MPPAA in 1980. The courts considering that definition today should bear that in mind.
1Pub. L. No. 96-364 sec. 407(a), 94 Stat. 1208 (1980).
2Pub. L. No. 93-406, 88 Stat. 829 (1974).
3Certain ERISA rules also apply to employer-sponsored welfare benefit plans, such as health care and disability benefit plans.
4The operative language in the original church plan definition creating this problem read as follows:
(C) Notwithstanding the provisions of paragraph (B)(ii), a plan in existence on January 1, 1974, shall be treated as a "church plan" if it is established and maintained by a church or a convention or association of churches for its employees and employees of one or more agencies of such church (or convention or association) for the employees of such church (or convention or association) and the employees of one or more agencies of such church (or convention or association), and if such church (or convention or association) and each such agency is exempt from tax under section 501 of the Internal Revenue Code of 1954. The first sentence of this subparagraph shall not apply to any plan maintained for employees of an agency with respect to which the plan was not maintained on January 1, 1974. The first sentence of this subparagraph shall not apply with respect to any plan for any plan year beginning after December 31, 1982.
ERISA § 3(33)(C), Pub. L. No. 93-406, 88 Stat. 829 (1974).
5The term "church" as used in this article includes a convention or association of churches, as does the church plan definition (both the original and the definition as revised in MPPAA).
6There are a variety of church-affiliated organizations that are not "steeples." Examples include colleges, universities, secondary schools, hospitals, nursing homes, children's homes, summer camps, and child-care centers. The various denominations and faith groups have always considered these employers to be within the bounds of their respective church governing structures, or polities.
7The theology of most Protestant and Jewish denominations and faith groups is congregational in nature.
8CACE (now known simply as the Church Alliance) was formed following an analysis of ERISA and its impact on a large church benefit program conducted by the author. There was no Catholic member of CACE during the period of time leading up to the enactment of MPPAA. This is an important point to remember, as will be seen in the discussion that follows.
9The CACE drafters also revised section 414(e) of the Internal Revenue Code of 1986, as amended ("Code"). Code section 414(e) contains the identical church plan definition as is found in ERISA section 3(33). There are a number of special rules and exemptions for church retirement plans in the Code, and if it is determined that a particular retirement plan is not a church plan under ERISA section 3(33), that will mean that the plan is not a church plan under Code section 414(e). This could result in disqualification of the plan under the Code rules, which would result in significant tax liability for the sponsoring employer. This is an issue of great importance that seems to have only been paid lip service by the courts in the current church plan status litigation and by Professor Stein.
10In providing the background on the CACE drafting effort, the author recognizes that CACE is not Congress and the CACE drafters were not Congressional or Treasury legislative staff. However, because the legislation Congress introduced and passed was virtually identical to the CACE proposal, the author hopes the reader will find the background useful in understanding the scope of the problem the MPPAA changes were intended to resolve.
11ERISA section 3(33)(A) was not substantively changed in the MPPAA revisions. It was essentially the same then as it is now:
(33)(A) The term "church plan" means a plan established and maintained (to the extent required in clause (ii) of subparagraph (B)) for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of the Internal Revenue Code of 1986.
12The CACE drafters were concerned that a church plan definition that was drafted too narrowly might prove Constitutionally-problematic if it favored one denomination, faith group, or polity over another.
13The CACE drafters also decided that new definition needed to have an expansive correction mechanism built into it so that, if a would-be church plan failed to meet a church plan status requirement, it could (if possible) correct the defect, with such correction to be given maximum retroactive effect.
14The judge in the Rollins case, discussed below, asked in his opinion why, if the church plan definition was to be read as the defendant Catholic health care system argued it should be read, the drafters of the legislation did not simply completely revise the entire text of section 3(33). There is a saying--usually mis-attributed to Otto von Bismarck but in fact authored by John Godfrey Saxe--that "Laws, like sausages, cease to inspire respect in proportion as we know how they are made" (or to paraphrase, "People who love sausage and the law should never watch either one being made."). That is certainly true for the MPPAA revisions to the church plan definition. The CACE drafters knew that, if the Catholic Church opposed its proposed changes, the legislation would not pass. The drafting process reflected that reality.
15As Professor Stein notes in his article, since the early 1980s, the Internal Revenue Service ("IRS") and, to a lesser extent, the Department of Labor ("DOL") have issued hundreds of private letter rulings and advisory opinions on the status of particular employee benefit plans as church plans. It is interesting that the analysis used in the IRS rulings closely follows the drafting principles noted above. The IRS's standard analysis has two prongs--under the first prong, the question asked is whether the particular organization sponsoring the benefit plan is controlled by or associated with a church, so that its employees are deemed to be church employees. If the organization is not a "steeple" (and in the rulings, they almost always are not), the second prong of inquiry is whether the plan is maintained by an organization (itself controlled by or associated with a church) whose principal purpose or function is the administration or funding of a pension plan, a welfare plan, or both.
16Two appellate courts have been called upon to determine if a particular church benefit plan (a disability benefit plan in both cases) was a church plan. See Chronister v. Baptist Health, 442 F. 3d 648 (8th Cir. 2006); Lown v. Continental Cas. Co., 238 F. 3d 543 (4th Cir. 2001). However, in reaching the conclusion that the plans in question were church plans, neither court examined the legislative history underlying the church plan definition or the DOL advisory opinions and IRS private letter rulings issued on the subject. Rather, both courts fashioned (out of whole cloth, it seems) their own criteria for determining church plan status under the statute.
17Thorkelson v. Publishing House of the Evangelical Lutheran Church in America, 764 F. Supp. 2d 1119 (D. Minn. 2011).
18The plaintiffs in Thorkelson did not argue that only a church could establish a church plan. Perhaps that was because they viewed an historic publishing house of a mainline denomination as sufficiently "churchy" to eliminate that argument.
19Professor Stein suggested that Judge Davis reached this conclusion "without any real statutory analysis." The author was involved in that litigation on the defendants' side, and the construction of the statute, its underlying legislative history and the DOL and IRS church plan analysis were all thoroughly briefed and argued by all parties. Judge Davis's opinion does not address the grammatical arguments made by the plaintiffs in Rollins and Kaplan, discussed below, because they were not raised in Thorkelson.
20Although the lawsuits principally focus on the defendant employers' respective defined benefit plans, it is important to remember that, if an employer's defined benefit plan is not a church plan, then all of that employer's benefit plans--retirement and welfare--are not church plans and all are subject to applicable ERISA and Internal Revenue Code requirements applicable to non-church plans.
21Overall v. Ascension Health (E.D. Mich.); Chavies v. Catholic Health East (E.D. Pa.); Rollins v. Dignity Health (N.D. Cal.); Kaplan v. Saint Peter's Healthcare System(D. N.J.); Medina v. Catholic Health Initiatives (D. Colo.); Owens v. St. Anthony Medical Center (N.D. Ill.); Stapleton v. Advocate Health Care Network (N.D. Ill.); and Linn v. Trinity Health (D. Md.).
22Plaintiffs also claim that the church plan exemption violates the Establishment Clause of the First Amendment of the U.S. Constitution
23Rollins v. Dignity Health, 2013 WL 6512682 (N.D. Cal. Dec. 12, 2013).
24Judge Henderson's opinion noted that Dignity Health had not claimed that it is a church or that the pension plan in question had been started by a church. Id. at *2.This raises the intriguing question of "what's a church?" for purposes of the church plan definition. The issue has been raised in at least two of the current church plan status lawsuits. It is not discussed herein, not because it is not an important and relevant line of inquiry, but rather because, under the author's view of the church plan definition, agencies can establish their own church plans, even if they are not considered to be "the church."
25ERISA section 3(33)(C)(i), as revised by MPPAA, is (along with ERISA section 3(33)(A)), the focal point of the recent church plan status litigation. It reads as follows:
(C) For purposes of this paragraph--
- A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of 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 or association of churches.
26Rollins v, 2013 WL 6512682 at *4.
27Following Judge Henderson's decision, Dignity Health filed a motion requesting an interlocutory appeal to the Ninth Circuit on the church plan status issue. Judge Henderson denied this motion, and the case continues on toward a trial on the merits.
28Kaplan v. Saint Peter's Healthcare System, 2014 WL 1284854 (D. N.J. March 31, 2014).
29All of the recent church plan status cases have been filed as class actions, but no rulings on whether class status should be granted have been issued to date.
30Kaplan, 2014 WL 1284854 at *8. Judge Shipp also characterized the Thorkelson decision as not having been based on "a detailed statutory analysis of the church definition as Judge Henderson did in Rollins." Id.. Again, as the briefs filed in Thorkelson make clear, the MPPAA church plan definition was thoroughly analyzed by both sides in that case.
31Id. at *7.
32If Congress had intended to limit paragraph (C)(i) only to the "maintain" requirement of subsection (A), it could easily have done so by beginning paragraph (C)(i) with "A church plan maintained by a church or . . . ." --but it did not do so.
33Kaplan, 2014 WL 1284854 at *6.
34The issue of whether judicial deference should be given to IRS PLRs is discussed in more detail in Section III below.
35See note 14, supra. As indicated in that footnote, the DOL has issued advisory opinions that utilize the same two-pronged analysis used by the IRS to determine whether a particular plan was a church plan. However, a DOL advisory opinion was not sought by Saint Peter's, presumably due to the virtual certainty that the DOL would interpret the church plan definition in the same manner as the IRS and due to the length of time and additional expense involved in securing a DOL advisory opinion.
36See Kaplan, 2014 WL 1284854 at *9.
37The Chevron judicial deference standard is discussed in more detail below in Section III.
38Judge Shipp cited several reasons for this determination. He indicated that the PLR was "contrary to congressional intent," "conclusory, lacking any statutory analysis," and "issued in a non-adversarial setting based on information supplied by [Saint Peter's]." Kaplan, 2014 WL 1284854 at *9-10.
392014 WL 2448492 (E.D. Mich. 2014).
40Id. at *11-12.
41Id. at *10.
42Id. at *9.
43Id. at *10-11. Overall is the first case in which a ruling has been made on the plaintiff's claim that the church plan exemption from ERISA violates the First Amendment's Establishment Clause. Ascension argued that the plaintiff had failed to allege she had suffered any injury with respect to her constitutional claim and that she therefore did not have standing to pursue it. Ascension also argued that, even if she did have standing, the MPPAA church plan definition is constitutional. Judge Cohn indicated that "Ascension's [standing] argument has merit." He determined that the complaint "fails to show that plaintiff has suffered a concrete harm, or that the relief she seeks would redress an alleged injury." Judge Cohn then dismissed the constitutional claim due to lack of standing. Id. at *15.
442014 WL 3408690 (D. Colo. July 9, 2014).
45The Magistrate Judge also found that Catholic Health Initiatives could not correct this defect in its church plan, determining that the generous correction period provided in ERISA section 3(33)(D) was only available for plans established by churches.
46The partial denial was based on Magistrate Judge Mix's determination that "it is not appropriate for the Court to order Defendants to take the specific steps to comply with ERISA at this time" because the parties had not provided any evidence on whether or not the Catholic Health Initiatives plan in fact complied with ERISA. Id. at*13.
47Medina v. Catholic Health Initiatives, 2014 WL 4244012 (D. Colo. Aug. 26, 2014).
48Id. at *2.
49On September 19, 2014, Judge Shipp certified the church plan status question for an appeal to the Third Circuit. That circuit will be the first appellate court to pass on the church plan definition issues raised by the current church plan status litigation. Stay tuned.
50Thorkelson, 764 F. Supp. at 1129.
51Rollins, 2014 WL 6512682 at *6.
52Kaplan, 2014 WL 1284854 at *5, *8.
53Medina, 2014 WL 3408690 at *7, *13.
54Judge Blackburn writes ". . . the magistrate judge read [the church plan definition] as unambiguous. I agree with that much of her conclusion, but find instead that the plain language clearly supports the conclusion that a plan that meets the requirements of subsection (C)(i) putatively qualifies for the exemption--without further, separate proof of establishment by a church--if the remaining requirements of the statute are otherwise met." Medina, 2014 WL 4244012 at *2.
55Though this difference in interpretation makes one wonder how the church plan definition as revised by MPPAA can continue to found to be plain and unambiguous, judges interpreting the same statute differently is not unique to this situation. See, e.g., Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985), where all nine justices of the Supreme Court found the scope of a civil RICO statute to be plain, but did so in a 5-4 decision.
56See United States v. Great Northern Ry., 287 U.S. 144 (1932), in which the Supreme Court said: "In aid of the process of construction we are at liberty, if the meaning be uncertain, to have recourse to the legislative history of the measure and the statements by those in charge of it during its consideration by Congress." See also Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994) ("We do not resort to legislative history to cloud a statutory text that is clear.").
57As indicated above, at the time of ERISA's passage, agency employers affiliated with many Protestant denominations routinely adopted and established their own benefit plans, due to the congregational nature of the church polity within whose boundaries they functioned. Professor Stein states that all church agency employers that had established their own plans were presumably complying with ERISA at the time MPPAA was enacted. That was not the case. The legislation proposed by CACE, and the legislation passed by Congress, was retroactively effective to the date of ERISA's enactment--which was critical, so that church agencies that had adopted their own plans would not face tax liability or penalties for the period between ERISA's enactment and MPPAA's passage.
58Id at *9.
59Id at *10, n. 4 (emphasis in original).
60Chevron U.S.A. v. National Resources Defense Council, 467 U.S. 837 (1984).
61United States v. Mead Corp., 533 U.S. 218 (2001); Christensen v. Harris County, 529 U.S. 576 (2000).
62Christensen v. Harris County, 529 U.S. 576 (2000). The Supreme Court recognized that agency determinations "which lack the force of law" required to be granted Chevron deference can still be granted deference "but only if they have the power to persuade." Id. at 587.
63See, e.g., Aluminum Co. v. Central Lincoln Util. Dist., 467 U.S. 380, 390 (1984).
64 See, e.g., Investment Co. Inst. v. Camp, 401 U.S. 617, 626-27 (1971).
65See, e.g., Udall v. Tallman, 380 U.S. 1, 16 (1965).
66See, e.g., General Electric Co. v. Gilbert, 429 U.S. 125, 142-43 (1976).
67The plaintiffs in the church plan status lawsuits no doubt disagree with the IRS analysis used in those PLRs over the years, but they are not "conclusory" as Judge Shipp suggested in Kaplan. They all contain a comprehensive listing of the facts underlying each ruling request, followed by a recitation of the applicable statutory language and agency guidance, and then they apply that language and guidance to the facts presented.
68The IRS's initial interpretation of the church plan definition as revised by MPPAA did not arise in a vacuum. The General Counsel Memorandum ("GCM") that paved the way for all subsequent church plan PLRs (was prepared by the IRS's Office of the Chief Counsel shortly after MPPAA's passage--at least shortly in IRS and Congressional terms. Gen. Couns. Mem. 39007 (July 1, 1983)). Although Chief Counsel attorneys did not have a seat at the drafting table when Congressional staff discussed and approved the MPPAA church plan definition, Treasury legislation counsel did, and it is unthinkable that Chief Counsel would have issued GCM 39007 without talking to Treasury legislation counsel about the meaning of the statute (and perhaps to Congressional staff as well).