Two recent court decisions are adding fuel to the fire over the use of church plan exemptions.
On Monday, a U.S. District Court in New Jersey dismissed a motion by Saint Peter's Healthcare System, New Brunswick, N.J., to stop a lawsuit by pension plan participants challenging a recent ruling by the IRS that it was a church plan exempt from ERISA. The IRS determination, wrote Judge Michael Shipp, “conflicts with the plain text of the statute and is therefore unreasonable.”
On March 28, Judge C. Darnell Jones of the U.S. District Court of the Eastern District of Pennsylvania refused to grant a motion to dismiss a similar case against Catholic Health East, Newtown Square, Pa., brought by participants challenging its church plan status.
A similar church plan challenge was filed March 17 in Chicago by participants in the Advocate Health Care Network Pension Plan, Downers Grove, Ill.
Several plan sponsors have relied on IRS exemptions from Employee Retirement Income Security Act rules on reporting, minimum contributions and paying premiums to the Pension Benefit Guaranty Corp. “Every lawyer advising a client that uses a church plan exemption is paying attention to these cases,” said Thomas E. Clark Jr., chief compliance officer and director of fiduciary oversight at FRA PlanTools, a fiduciary consulting firm. “The clear trend is that the courts are throwing out 30 years of IRS interpretation on this issue.”
Karen Ferguson, director of the Pension Rights Center, noted that while the cases are likely to work their way through the courts in multiple jurisdictions, “it's a tremendous victory for participants. The (New Jersey) court basically said, 'the law is clear.'”