Thoughts on Kaplan v. Saint Peter's Healthcare System and the Church Plan Exemption

Remember the Church Lady from Saturday Night Live? I have always wondered if she was covered by an ERISA governed retirement plan, or whether her retirement plan was exempt from ERISA as a church plan. I think the answer probably lies in the question of whether her retirement benefits were established and maintained by NBC, or instead directly by her church. I always thought SNL should do a skit on this topic; Chevy Chase would have been hysterical portraying the head of EBSA.

It’s a silly hypothetical, but its an interesting way to think about the Third Circuit’s recent decision in Kaplan v. Saint Peter’s Healthcare System, which is the first appellate decision addressing the recent wave of lawsuits claiming that a number of pension plans that always considered themselves exempt from ERISA on the grounds that they were church plans are, in fact, not church plans and instead are subject to ERISA. The Third Circuit found that such an exemption can only be claimed when the plan was directly established by a church itself, and not by an organization associated with a church. Although the Third Circuit buttressed its interpretation of the language of the exemption itself with other grounds for its ruling, the central aspect of its decision turned on the actual statutory phrasing of the exemption. This focus on the language used in the statute makes the Court’s decision seem straightforward, but it really isn’t; in fact, as the Third Circuit’s decision reflects, the IRS itself has interpreted that same language quite differently for many years.

The Third Circuit’s opinion is a great read, and very persuasive. And yet in some ways, while very compelling, it reads almost as much as a political document – in the sense of being written to persuade an audience – as it does as an inevitable outcome of sharp legal reasoning (which it clearly is as well). The Court provides a very plausible interpretation of the statutory language itself, but if that analysis stood alone, segregated from the supporting arguments relied on by the Court for its interpretation of the church plan exemption that are based on canons of statutory interpretation, on legislative history and on the public policy behind ERISA, that analysis would not be half as persuasive. The proper interpretation of the language in the exemption itself has been hotly disputed in the courts for a simple reason: the language doesn’t perfectly fit either the findings of the Third Circuit, nor those of the courts and parties who argue that the exemption applies more broadly than the Third Circuit found. But the Third Circuit, by buttressing its interpretation with very persuasive arguments that statements in the legislative record and the purposes of ERISA itself support its reading of the church plan exemption, created a heuristic environment in which the panel’s reading of the exemption seems almost inevitable, and in fact practically preordained (get it?).

And yet every student of the political process or experienced appellate lawyer knows that the only thing more malleable than canons of statutory interpretation is legislative history itself. As a result, despite the beautiful, almost cathedral like construction (hope you are enjoying the sustained metaphor as much as I am) of the Third Circuit’s opinion, I am not sold that it is the final word on the question, and would not be surprised at all if one or more other circuits came to an opposite conclusion. I have little doubt that another appellate panel, confronted by the same unclear statutory language, could find support in both legislative history and the public policy underlying ERISA for an entirely opposite interpretation of the exemption.
 

 

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