Seventh Circuit Rules Advocate Health Care Network Pension Plan is Not a Church Plan Exempt from ERISA

A federal appeals court has ruled that a non-contributory, defined benefit pension plan maintained by Advocate Health Care Network of Downers Grove, Illinois does not qualify as a “church plan” exempt from the Employment Retirement Income Security Act of 1974 (“ERISA”), the federal pension law that requires such plans to be fully funded and provides employees with certain rights related to benefit entitlements.

The unanimous decision, written by Judge Ilana Rovner, of the U.S. Court of Appeals for the Seventh Circuit on March 17, 2016, upheld a U.S. District Court decision that Advocate, which employs more than 33,000 people, was ineligible for the church-plan exemption because the Advocate Health Care Network Pension Plan (“the Plan”) was not established by a church.

In 1995, Evangelical Health Systems and Lutheran General HealthSystem merged to create Advocate, an Illinois non-profit corporation. Advocate is the largest health care provider in Illinois, operating 12 hospitals and more than 250 other inpatient and outpatient health care locations across northern and central Illinois. Advocate’s predecessors established the Plan and Advocate maintains the Plan now. It is undisputed that Advocate is not a church, and nor were its predecessors.

In 2014, plaintiffs Maria Stapleton, Judith Lukas, Sharon Roberts, and Antoine Fox, who are former and current Advocate employees, filed a proposed class action lawsuit on behalf of themselves and other pension participants or beneficiaries alleging that Advocate is violating numerous provisions of ERISA while erroneously claiming that the Plan is exempt from ERISA’s protections because it is a church plan.

Advocate moved to dismiss the lawsuit claiming that it qualified for the church plan exemption from ERISA. The District Court for the Northern District of Illinois denied the motion and concluded that the Plan was not entitled to ERISA’s church plan exemption as a matter of law because the statutory definition requires a church plan to be established by a church. Advocate subsequently appealed that decision to the Seventh Circuit.

The Seventh Circuit Opinion addressed the issue whether a pension plan, such as the Advocate Health Care Network Pension Plan, must be “established by” a church to qualify for the church plan exemption. The Third Circuit was the first appellate court to speak to this issue, and it did so last December in a 3-0 published opinion. Kaplan v. Saint Peter's Healthcare System, 810 F.3d 175 (3d Cir. 2015). Here, the Seventh Circuit concluded, siding with their colleagues on the Third Circuit, that under the plain language of the statute, “a plan must . . .  be established by a church.” The Seventh Circuit also held, again agreeing with the Third Circuit, that the legislative history supports this result, and that the agency determinations to the contrary are incorrect and entitled to no deference. And, like the opinion in the Third Circuit, the Seventh Circuit Opinion is unanimous. With this decision, there are now two Circuit Courts that reject the premise that a church-affiliated organization, such as Advocate Health Care Network, can qualify for the church plan exemption.

The plaintiffs in Stapleton v. Advocate Health Care Network are represented by Lynn Sarko, Ron Kilgard, Matthew Gerend, and Erin Riley of Keller Rohrback L.L.P.,  Karen Handorf, Michelle Yau, and Mary Bortscheller of Cohen Milstein Sellers & Toll PLLC, and James Zouras and Ryan Stephan of Stephan Zouras, LLP.

Seventh Circuit Opinion – 3/17/2016