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Vol 12, Num 1 l February 2016

Labor and Employment

► In This Issue:

There Is Separation Between Church and Pension, and It May Impact Your Restructuring


Sharon L. Levine
Lowenstein Sandler LLP Roseland, N.J.


S. Jason Teele
Lowenstein Sandler LLP Roseland, N.J.


Keara Waldron
Lowenstein Sandler LLP
Roseland, N.J.

The Third Circuit recently became the first U.S. Court of Appeals to rule that a pension plan established by a church agency does not qualify as an exempt “church plan” under subsection 4(b)(2) of the Employment Retirement Income Security Act (ERISA). The Third Circuit viewed its decision as coming in the midst of a “new wave of litigation” challenging the prior assumption that entities with sufficiently strong ties to churches, but not the churches themselves, could establish plans exempt from the requirements of ERISA.

The case of Kaplan v. Saint Peter’s Healthcare System came before the Third Circuit on an interlocutory appeal following the denial of a motion to dismiss by the U.S. District Court for the District of New Jersey. St. Peter’s Healthcare System, a nonprofit health care entity with ties to the Roman Catholic Diocese of Metuchen, N.J., sought to dismiss a class action complaint alleging that St. Peter’s violated ERISA by failing to provide ERISA-compliant summary plan descriptions or pension benefit statements and that it underfunded the plan by more than $70 million. In support of its motion to dismiss, St. Peter’s argued that it qualified for ERISA’s church plan exemption and was therefore not required to comply with certain ERISA provisions, including reporting and minimum funding requirements.

Specifically, St. Peter’s argued that, pursuant to certain amendments made to the ERISA statute in 1980, a plan established by a church agency (as St. Peter’s claimed to be) qualifies as a church plan eligible for exemption from ERISA. St. Peter’s supported its position with an IRS private letter ruling issued while the action was pending, which construed the same definition of “church plan” to affirm the plan‘s status as exempt for tax purposes.

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