Unpaid ERISA contribution are not plan assets – 9th Circuit

Trustees of an ERISA health plan sued the owners of Accuracy Glass & Mirror Co who had not paid contributions that were required by two master labor agreements. The trustees claimed that the unpaid contributions were plan assets and that the owners had breached their fiduciary duties.

Funny thing though. There was a previous bankruptcy case that held that there's no fiduciary duty until the employer pays its contribution over to the plan. (That case was Bos v. Board of Trustees (Bos I), 795 F.3d 1006 (9th Cir 2015) [PDF].) The 9th Circuit held (2-1) that it was bound by that case, and thus held that the owners were not fiduciaries as to the unpaid contributions. "[E]ven an ERISA plan that treats unpaid contributions as plan assets does not make an employer a fiduciary with respect to those owed funds." Glazing Health and Welfare Fund v. Lamek (9th Cir 03/21/2018) [PDF].

A dissent took the majority to task for extending a bankruptcy case out of the bankruptcy context. "I would find that unpaid employer contributions to employee benefit plans may constitute plan assets when the ERISA plan document expressly defines them as such."

There is a split of authority among the federal Circuit Courts on this issue.


SG will advise Supreme Court on Ford's ERISA case

The US Supreme Court has asked the US Solicitor General to express the government's views on whether to grant certiorari in an ERISA case: Strang v. Ford Motor Company General Retirement Plan [Briefs] [Order].

Technically, the question is:

"Whether the U.S. Court of Appeals for the 6th Circuit erred in holding–in conflict with the U.S. Courts of Appeals for the 2nd, 8th, and 9th Circuits–that an ERISA claimant is barred from alleging a claim for breach of fiduciary duty under section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), whenever that claimant has the opportunity to allege a claim for benefits under section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B)."

Facts: The facts are so complex that they cannot all be laid out here. John Strang, the beneficiary of an ERISA plan, was told that the plan would allow lump-sum distributions during a randomly-assigned window period. When John was diagnosed with a terminal illness, he and his wife Jennifer had a number of communications with the plan in an attempt to make an early application for a lump-sum payment. However, John died before his election period began and his attempt to elect a lump-sum payment was ineffective. Jennifer submitted a claim and an appeal, but the plan denied her claim.

Jennifer sued the plan, bringing a denial-of-benefits claim under ERISA § 502(a)(1)(B). The 6th Circuit denied that claim, saying that it was not arbitrary and capricious for Ford to set a period to elect lump-sum distribution of retirement benefits. John did not apply during the established window, and the documents that were submitted were not in the proper form. Strang v. Ford Motor Company General Retirement Plan (6th Cir 05/19/2017) [PDF].

Jennifer then turned to ERISA § 502(a)(3) – breach of fiduciary duty. But the 6th Circuit disallowed that because "the injury for the breach of fiduciary duty and for the denial of benefits is one and the same." This analysis relied on Rochow v. Life Insurance Co., 780 F.3d 364 (6th Cir. 2015) (en banc) [PDF], which said:

"A claimant can pursue a breach-of-fiduciary-duty claim under § 502(a)(3), irrespective of the degree of success obtained on a claim for recovery of benefits under § 502(a)(1)(B), only where the breach of fiduciary duty claim is based on an injury separate and distinct from the denial of benefits or where the remedy afforded by Congress under § 502(a)(1)(B) is otherwise shown to be inadequate." [Emphasis in original.]

The Supreme Court will now wait to hear from the Solicitor General before deciding whether or not to grant certiorari. There is no deadline for the Solicitor. Generally this process takes several months, so we may need to wait until the Fall of 2018.

[For a list of current employment law cases, see Supreme Court Watch.]


SCOTUS hands big win to employers in ERISA church plan case (+ video)

It's unanimous. ERISA's "church plan" exemption applies to a pension plan that is maintained by a church-affiliated organization even though the plan was not established by a church. Advocate Health Care Network v. Stapleton (US Supreme Court 06/05/2017) [Opinion text].

 
 Watch the video

Watch the video

 

Takeaway: This means that a huge number of hospitals and health care facilities are allowed to ignore ERISA's rules, which are designed to protect employees. These institutions operate for-profit subsidiaries, employ thousands of employees, generate billions of dollars in revenues, and compete in the marketplace with companies that must bear the costs of complying with ERISA.

Original ERISA church plan exemption: ERISA § 1002(33)(A) defines a church plan as a “plan established and maintained” by a church. [Emphasis added.] 

But Congress later amended ERISA to expand the definition in §1002(33)(C)(i):

“A plan established and maintained for its employees . . . by a church . . . includes a plan maintained by an organization . . . the principal purpose . . . of which is the administration or funding of [such] plan . . . for the employees of a church . . . , if such organization is controlled by or associated with a church.”

The Supreme Court placed its focus on the word "includes." Lower courts (3rd, 7th, and 9th Circuits) had agreed with the employees' argument that §1002(33)(C)(i) merely created a sub-set of church plans, but the plans still had to have been established by a church. Reversing, the Supreme Court explained that use of the word “include” is not literal, but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition. In other words, because Congress deemed the category of plans “established and maintained by a church” to “include” plans “maintained by” church-affiliated organizations, those plans – and all those plans – are exempt from ERISA’s requirements.

In trying to make sense out of Congress' somewhat opaque language, the Court pointed out that (1) there were much more direct ways for Congress to draft language that would have the effect the employees wanted and (2) the employees' interpretation would have required that one ignore the words "established and" in subparagraph (C)(i).

And what's missing? The Court points out that three government agencies (Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation) have for decades interpreted the statute as exempting plans like the ones involved in this case. Yet the Court does not breathe a single word as to whether those agencies' interpretations are entitled to one whit of deference. This is especially interesting in light of the fact that the government's amicus brief placed huge emphasis on deference-to-agency principles, and it pleaded with the Court to recognize the hospitals' reliance interest that built up over decades.

[For recent decisions and pending employment law cases, see Supreme Court Watch.]

SCOTUS argument: What's an ERISA church plan?

Advocate Health Care Network v. Stapleton [Supreme Court briefs] comes up for oral argument at the US Supreme Court on March 27. "Church plans" are specifically exempt from ERISA. Thus, church plans can ignore the many requirements and restrictions that ERISA requires of pension and benefit plans that are maintained by other private employers. The central issue is whether an employee benefit plan must be initially established by a church in order to qualify for ERISA's church plan exemption, or whether it is enough that the plan is maintained by a church or by a church-controlled or church-affiliated organization.

 
  Video : 2:50 minutes. Discussing pending Supreme Court case on ERISA church plans.  Advocate Health Care Network v. Stapleton

Video: 2:50 minutes. Discussing pending Supreme Court case on ERISA church plans. Advocate Health Care Network v. Stapleton

 

Government's SCOTUS brief supports hospitals in ERISA church plan cases

"We've always done it that way" seems to be the main argument advanced by the government's amicus curiae brief [Text of brief] in the consolidated cases of Advocate Health Care Network v. Stapleton [Supreme Court briefs], Saint Peter’s Healthcare System v. Kaplan [Supreme Court briefs], and Dignity Health v. Rollins [Supreme Court briefs].

The brief is signed by the Deputy Solicitor General and supported by the Department of the Treasury, Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation.

The controversy has to do with "church plans," which are specifically exempt from ERISA. Thus, church plans can ignore the many requirements and restrictions that ERISA requires of pension and benefit plans that are maintained by other private employers. The central issue is whether an employee benefit plan must be initially established by a church in order to qualify for ERISA's church plan exemption, or whether it is enough that the plan is maintained by a church or by a church-controlled or church-affiliated organization.

Here is a summary of the government's four main argument points, all of which lean heavily on the fact that the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation have always interpreted the statute as applying the church plan exemption to plans that were not initially established by a church:

  1. The agencies' interpretation reflects the natural reading of the statutory text. [I actually have some doubts about this, and the recent Circuit courts' decisions don't buy it.]
  2. The agencies' interpretation is supported by the context, history, and purpose of the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA).
  3. The Court should give deference to the agencies' interpretation, citing Skidmore v. Swift & Co, 323 US 134 (1944).
  4. Nobody has come up with a good reason to upset decades of reliance interests.

Oral argument has not yet been scheduled. A decision is expected by July. For my previous comments on these cases: Ross Runkel Report - Supreme Court will decide 3 ERISA church-plan cases.

[For recent decisions and pending employment law cases, see US Supreme Court Watch.]

 

- Web site for Ross Runkel, Arbitrator & Mediator: https://www.RossRunkel.com/ -

Supreme Court will decide 3 ERISA church-plan cases

ERISA contains an exemption for "church plans." They are simply not covered by ERISA, so these plans are free to ignore a seemingly endless number of restrictions that apply to plans that are maintained by other private employers. But when does a plan qualify as a church plan? Must it have been initially established by a church? Or is it enough that the plan is maintained by an otherwise qualifying church-affiliated organization such as a hospital?

On December 2 the US Supreme Court granted certiorari in three cases in which the lower courts held that it is not enough that a plan is currently maintained by a church or by a church-controlled or church-affiliated organization. The holdings were that the plan also must have been initially established by a church or by a convention or association of churches. The following cases have been consolidated for one hour of argument some time in 2017: Advocate Health Care Network v. Stapleton [Supreme Court briefs], Saint Peter’s Healthcare System v. Kaplan [Supreme Court briefs], and Dignity Health v. Rollins [Supreme Court briefs].

These cases could possibly up-end thirty years of administrative interpretations that have granted a church plan exemption even though a plan was not initially established by a church – so long as it is maintained by an otherwise qualifying organization that is associated with or controlled by a church.

All three cases present the issue as follows:

The Employee Retirement Income Security Act of 1974 (“ERISA”) governs employers that offer pensions and other benefits to their employees. “Church plans” are exempt from ERISA’s coverage. 29 U.S.C. §§ 1002(33), 1003(b)(2). For over thirty years, the three federal agencies that administer and enforce ERISA—the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation—have interpreted the church plan exemption to include pension plans maintained by otherwise qualifying organizations that are associated with or controlled by a church, whether or not a church itself established the plan.
The question presented is whether the church plan exemption applies so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan.

ERISA Subsection (33)(A) defines a church plan as a “plan established and maintained” by a church. [Emphasis added.] 

Subsection (33)(C) states as follows:

(C) For purposes of this paragraph— (i) A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches. [Emphasis added.]

In each case, the employees are saying that Subsection (33)(A) requires that two separate elements must both be met for the exemption to apply: (1) a church must first create or establish the plan and then (2) maintain the plan.

And the plans are saying that Subsection (33)(C) enlarges the definition of a church plan.

The lower courts essentially are holding that Subsection (33)(C) is dealing with a subset of church plans, and is not put there to enlarge the definition of a church plan. Put simply, to qualify as a church plan a church must both first create or establish the plan and then also maintain the plan.

Are there already some tea leaves we should be reading? The Supreme Court issued a stay of the 9th Circuit's ruling that a pension plan operated by Dignity Health does not qualify for ERISA’s church-plan exemption. Dignity Health v. Rollins (US Supreme Court 09/21/2016) [Text of Supreme Court order] The stay will remain in effect while the Court decides these cases. One might read this action as indicating that the Court is leaning toward overruling the lower courts in all three cases. I read that action as merely wanting to preserve the status quo while a decision is being made. 

Meanwhile, I have considerable trouble with the plans' argument that Subsection (33)(C) changes (that is, expands) the Subsection (33)(A) definition. We shall see.

[For recent decisions and pending employment law cases, see US Supreme Court Watch.]