Church Plan Litigation and My New Article On It

When courts first started tackling the new wave of suits challenging the church plan status of certain health care entities, I thought it an amusing curiosity, at best. I did grasp, however, the impetus from the perspective of the class action bar, which is that, if able to overturn the claimed exemptions of the defendants in court, there were potentially large amounts of money at stake, as well as potentially large fees. What I didn’t quite grasp at the time, because I was looking at the question solely from the point of view of an ERISA litigator, was the substantive impact on plans if the case law, as a result of the filing of those suits, started to put into question the propriety of church plan status for entities, not involved in the suit, who had long relied on the church plan exemption as the framework for structuring their employee benefit plans. For instance, I was having a conversation the other day about a particular plan’s obligations in light of Windsor and same sex marriage issues, and whether the obligations of a plan entitled to the church plan exemption might differ from those of a plan not entitled to that exemption. Multiply that by the many differences between the operations and terms of a plan covered by ERISA and one entitled to the church plan exemption and you realize how significant the exemption can be on the operations of a plan and, in turn, how much it would affect plans currently claiming the exemption if, as a result of new judicial interpretations of the exemption driven by the pending cases, some of those plans lost access to the exemption.

Tibble v Edison, now up before the Supreme Court, and the history of excessive fee class action litigation presents a nice way of looking at this phenomenon. In the early years of those claims, other than with regard to the large risks they posed because of the amount of money involved, people in the industry weren’t all that impressed by those types of claims, as the courts showed an initial reluctance to credit the theories of the class action bar in that regard. With the passage of time, though, those claims started to be taken much more seriously and became more successful. Now, years into the process, we have the Supreme Court, in Tibble, using one of those cases as an opportunity to set forth the rules governing ERISA’s statute of limitations for fiduciary duty claims. Tibble shows the long tail of the institution of new theories of liability in ERISA litigation, and their potential for causing unanticipated change to the jurisprudence. Years after the excessive fee claims began being filed and years after Tibble was tried, that once novel theory of liability is provoking the system to look anew at a fundamental element of ERISA, its statutory provision governing statute of limitations for breach of fiduciary duty claims.

Therein lies the fly in the ointment with regard to giving little weight to the current crop of church plan cases; no matter what becomes of those particular cases, they may well upturn the apple cart and create confusion, where currently little exists, as to when plans can invoke the exemption. One reason that this risk is present is that it really isn’t clear, given the statutory language, which side is really right about the exemption and when it should apply, a point I discussed in detail in my new article in ASPPA’s Plan Consultant magazine. With unclear statutory language, it is hard to predict how the cases that are currently wending their way through the system may come out and whether, as in the excessive fee cases, one of them might substantially impact the jurisprudence years down the road.