Appellate Court Says Mercy Health’s Pension Plan Is a Church Plan

However, the case was sent back to a federal district court to determine whether ERISA’s church-plan exemption violates the Establishment Clause.

The 8th U.S. Circuit Court of Appeals has found that the defined benefit (DB) plan sponsored by Mercy Health is a church plan eligible for exemption of Employee Retirement Income Security Act (ERISA) provisions.

A registered nurse filed suit against Mercy, alleging violations of federal and state laws. She claimed that Mercy’s plan management disregards ERISA’s requirements, for example, to maintain certain funding levels and issue reports to beneficiaries. In response, Mercy asserted that it does not have to comply with ERISA’s requirements because the plan falls under ERISA’s church-plan exemption.

The plaintiff argued that the plan was not a church plan and, thus, its failure to comply with ERISA violated the statute. In the alternative, she argued that the church-plan exemption violates the Establishment Clause. A district court dismissed the case for lack of jurisdiction. It found that there was no jurisdiction under ERISA because the plan is a church plan and that the plaintiff lacked standing to bring suit under the Establishment Clause. After dismissing all the federal claims, the court dismissed the remaining state law claims for lack of supplemental jurisdiction.

In its opinion, the 8th Circuit says because the plaintiff does not contest that the retirement plan committee’s primary purpose is administering the plan and that it is associated with the Catholic church, the arguments focus on whether the committee maintains the plan and whether it constitutes an organization. These arguments are based on language in ERISA’s definition of a “church plan.”

The appellate court noted that, at the time the church-plan exemption was amended to its current form, one dictionary defined maintain as “to cause to continue in a specified state, relation, or position.” The court pointed out that a more recent dictionary provides similar definitions: “1. To continue (something)” or “4. To care for (property) for purposes of operational productivity.” The court also pointed out that the 10th U.S. Circuit Court of Appeals used a similar definition when it ruled in favor of Catholic Health Initiatives in a similar lawsuit.

Considering the plaintiff’s own allegations, the 8th Circuit found that the Mercy Health retirement plan committee’s activities satisfy the plain meaning of maintain. The complaint stated that “Mercy is required to designate the committee which has sole responsibility for administration of the plan.” What the appellate court said is “most damaging,” to the plaintiff’s argument is that the complaint stated that “[t]he Benefits Committee has all discretionary powers and authority necessary to carry out the provisions of the plan.”

“Those are more than managerial tasks. These allegations indicate that the committee ‘cares for the plan for purposes of operational productivity,’ … and that the committee ‘cause[s] [the plan] to continue’ and ‘secure[s] the continuance of’ the plan.’ Thus, under maintain’s ordinary meaning, the committee maintains the plan,” the appellate court stated in its opinion.

Addressing the plaintiff’s argument that the committee does not constitute an organization, the 8th Circuit again applied the term’s ordinary meaning. The appellate court noted that the district court cited numerous definitions, which found that an “‘organization’ [w]as an administrative and functional structure,” or “a group of people who work together in an organized way for a shared purpose.” Again following the logic used in Medina v. Catholic Health Initiatives, the 8th Circuit found that the committee constitutes “a group of people who work together in an organized way for a shared purpose.” It concluded, therefore, that the committee satisfies the ordinary meaning of organization.

The plaintiff argued in her appeal that, even if the district court applied the correct statutory definitions, it abused its discretion by deciding the issue and effectively denying her “the opportunity for … discovery to establish [her] claim.” The appellate court agreed with the defendants that the plaintiff waived that argument by not presenting it to the district court. “We have often explained that arguments not presented to the court below will not be considered on appeal,” it said in its opinion.

In sum, the court found that the plaintiff failed to adequately state a claim under ERISA because the plan is a church plan, and she waived any claim for additional discovery by not requesting it before.

Turning to the plaintiff’s argument that if the plan is a church plan, the church-plan exemption violates the Establishment Clause—the clause in the First Amendment of the U.S. Constitution that prohibits the establishment of religion by Congress—the appellate court pointed out that the district court dismissed that argument because it found the plaintiff lacked standing to challenge the statute. According to the 8th Circuit, there are three elements to standing: (1) “the plaintiff must have suffered an ‘injury in fact,’” (2) “there must be a causal connection between the injury and the conduct complained of,” and (3) “it must be ‘likely,’ as opposed to merely ‘speculative,’ that the injury will be ‘redressed by a favorable decision.’”

The district court determined that the plaintiff only “raise[d] the specter of a potentially underfunded plan in the future without ERISA protections,” which was not enough to establish a concrete, redressable harm. When a plan is underfunded, there is no direct impact on the beneficiaries. They only feel an effect if the underfunding leads to a reduction in their benefits. Because that is a potential, future injury, a “plaintiff must demonstrate that the threatened injury is certainly impending, or there is a substantial risk that the harm will occur.” The 8th Circuit agreed with the district court that the underfunding here does not meet that standard.

However, the appellate court found that the district court and Mercy failed to address many other alleged injuries—most importantly, the deprivation of ERISA protections. Those protections include ERISA’s funding requirements, Pension Benefit Guaranty Corporation insurance and notice requirements. But for the church-plan exemption, the plaintiff would be able to sue under ERISA to enforce those protections, the appellate court noted. So the question is whether the deprivation of the specified ERISA protections constitutes a sufficient injury to confer standing.

The 8th Circuit remanded the case to the district court to determine whether the deprivation of ERISA protections confers Article III standing, and if so, whether the church-plan exemption violates the Establishment Clause. It added that if there is Article III standing, the state law claims brought by the plaintiff should be reinstated.