On July 26, 2016, the US Court of Appeals for the Ninth Circuit issued a decision in Rollins v. Dignity Health, holding that an employee retirement plan established and maintained by a Catholic religious order is not a church plan under ERISA. The Ninth Circuit held that the church plan exemption is available only to plans that are both:

(No. 15-15351, (9th Cir. Jul. 26, 2016).)

The retirement plan at issue is sponsored by a nonprofit hospital system established in California by two branches of a Catholic religious order known as the Sisters of Mercy. In the early 1980s, the Sisters of Mercy established two separate nonprofit hospital systems that were merged into a single system, Catholic Healthcare West (CHW), in 1986. Employees of CHW received benefits from seven retirement plans maintained by the Sisters of Mercy, an individual hospital, or CHW. These seven plans were later merged into a single plan (the Plan), and in 1992, CHW's board of directors adopted a retroactive resolution to treat the plan as a church plan. (CHW was later renamed Dignity Health.)

Church plans that have not made an election to be covered by certain provisions of the Internal Revenue Code (Code) are exempt from many ERISA provisions, including fiduciary obligations and minimum funding rules (26 U.S.C. § 1003(b)(2); see Practice Notes, Title I of the Employee Retirement Income Security Act (ERISA): Overview: Exceptions to ERISA Coverage and Minimum Funding Standards for Defined Benefit Plans).

The plaintiff is a participant in the Plan and filed a putative class action against Dignity Health and other plan fiduciaries, alleging:

Dignity Health argued that the Plan is not required to comply with ERISA because it falls within the church plan exemption under ERISA Section 3(33)(C)(i) (29 U.S.C. § 1002(33)(C)(i)).

The US District Court for the Northern District of California granted partial summary judgment against Dignity Health, holding that an employee benefit plan qualifies for ERISA's church plan exemption under ERISA Section 3(33)(C)(i) only if the plan is:

(The district court did not reach the question of whether the church plan exemption is constitutional.)

However, the district court certified its order for interlocutory appeal to the Ninth Circuit because of the importance of the church plan issue in this litigation, and the Ninth Circuit accepted jurisdiction of the appeal.

On appeal, the Ninth Circuit affirmed the district court's partial summary judgment and remanded the case for further proceedings. The Ninth Circuit agreed with the district court that an employee benefit plan qualifies for the church plan exemption under ERISA Section 3(33)(C)(i) only if the plan is both:

To reach this holding, the Ninth Circuit first analyzed the relevant statutory text. ERISA Section 3(33)(C)(i), which was added by the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), expanded the definition of church plan under ERISA Section 3(33)(A) to provide that a plan established and maintained by a church includes a plan maintained by a principal-purpose organization. For more information on the church plan definition, see Legal Update, Retirement Plan Established by a Church Agency Does Not Qualify as an ERISA Church Plan: Third Circuit .

Dignity Health argued that a plan is a church plan if it is maintained by a principal-purpose organization, even if it was established by an organization other than a church. The Ninth Circuit rejected this interpretation and followed the interpretation recently applied by the Third and Seventh Circuits: Section 3(33)(C)(i) broadens the definition of organization that can maintain a church plan to include principal-purpose organizations, but it does not alter the requirement that all church plans must be established by a church.

For more information on the Third Circuit decision (Kaplan v. Saint Peter's Healthcare Sys.) and Seventh Circuit decision (Stapleton v. Advocate Health Care Network), see Legal Updates, Retirement Plan Established by a Church Agency Does Not Qualify as an ERISA Church Plan: Third Circuit and Another Circuit Court Holds Retirement Plan Established by a Church-Affiliated Organization Does Not Qualify as an ERISA Church Plan: Seventh Circuit.

The Ninth Circuit addressed the other arguments raised by Dignity Health and rejected all of them, including its arguments based on:

In the Ninth Circuit, hospitals, schools, and other institutions operated by church-affiliated organizations should evaluate the status of their employee benefit plans in light of Rollins. If these plans were not established by a church, they will not qualify for the church plan exemption, even if they are currently maintained by church-affiliated organizations. This means that these organizations will have to bring their plans into compliance with ERISA.

Plans maintained by church-affiliated organizations outside of the Third, Seventh, and Ninth Circuits should be attentive to how other courts rule on pending church plan cases.