The HR Legal News Blog

New Jersey Federal Court Rules St. Peter’s Healthcare System Retirement Plan is Not a Church Plan

Many religiously affiliated organizations consider their employee benefit plans to be “church plans” and, therefore, to be exempt from ERISA.  A recent federal court decision now casts some doubt on this position.

In Kaplan v. Saint Peter’s Healthcare System, the United States District Court for the District of New Jersey ruled that a defined benefit pension plan established and maintained by a Catholic non-profit healthcare system was not eligible for the church plan exemption. Adopting a narrow construction of the definition of “church plan” in Section 3(33) of ERISA, the Court stated that a “church plan” is “(1) a plan established and maintained by a church, or (2) a plan established by a church and maintained by a tax-exempt organization, the principal purpose or function of which is the administration or funding of the plan, that is either controlled by or associated with a church.”   The Court concluded that a plan must actually be established by a church in order to be considered a “church plan.”  The Court held that the defined benefit plan established by Saint Peter’s Healthcare System–which was not itself a church–could not satisfy the requirements for classification as a church plan.

Of particular interest is the fact that Saint Peter’s had previously received a private letter ruling from the IRS that concluded that its plan was, in fact, a church plan.  The Court declined to give the IRS ruling deference and, moreover, argued that similar rulings by the DOL and IRS “seem to be somewhat responsible for the over broad application of the church plan exemption.”

Similar cases are working their way through the courts in a variety of jurisdictions.  Religiously affiliated healthcare systems and educational institutions that sponsor employee benefit plans would be wise to monitor this issue.

Hat tip to FRA PlanTools Blog for its comprehensive coverage of this issue.