Amicus Curiae Brief — Advocate Health Care Network v. Stapleton, 137 S. Ct. 1248 (2017) (No. 16-74)

ADVOCATE HEALTH CARE NETWORK, ET AL.,

Petitioners,

v.

MARIA STAPLETON, ET AL..,

Respondents.

SAINT PETER’S HEALTHCARE SYSTEM, ET AL.,

Petitioners,

Vv.

LAURENCE KAPLAN,

Respondent.

DIGNITY HEALTH, ET AL.,

Petitioners,

Vv.

STARLA ROLLINS,

Respondent.

On Writs of Certiorari to the

Third, Seventh, and Ninth Circuits

BRIEF OF AMICUS CURIAE

PENSION RIGHTS CENTER

IN SUPPORT OF RESPONDENTS

——

NORMAN P. STEIN KAREN W. FERGUSON

Of Counsel Counsel of Record

3320 Market Street PENSION RIGHTS CENTER

Philadelphia, PA 19104 1350 Connecticut Avenue N.W

(205) 410-0989 Washington, DC 20036

nps32@drexel.edu (202) 296-3776

kferguson@pensionrights.org

Counsel for Amicus Curiae

February 23, 2017

ernment rennin neo ov

VILSON-EPES PRINTING Co., INC. — (202) 789-0096 - WASHINGTON, D. C. AIRE

TABLE OF CONTENTS

TABLE OF AUTHORITIBEG................::ccssceseeeeees

INTEREST OF AMICUS CURIAE.....................

SUMMARY OF ARGUMENT ....0000.. ccc eeeee

I.

Il.

It.

IRS “Church Plan” Rulings Harm

Pension Plan Participants........................

pT ae en oe

B. The Funded Status of Plans with IRS

C. How IRS Church Plan Rulings Affect

TT isciisdcnucteantnipasnetstitabigubvibnaiones

The History of the Church Plan

ER SR ILE A A SOS na

Statutory language and _ legislative

history show that Congress intended that

(C)G) only exempt church-established

plans that are maintained nal church

pension boards ..

ERISA Does Not Permit Vebuntanry,

Revocable ERISA Plans..................0:c000000+

Petitioners Exaggerate the Conse-

quences to Plan Sponsors of Affirmance

of the Decisions Below and Ignore the

Threat to Retirement Security that

these “Church Plans” Pose to Agency

Employees and Their Families.................

IIIT tirinitecdnctsnnsnisecsinnsictinteienntnsipohbmnnete

14

24

27

28

30

ii

TABLE OF AUTHORITIES

CASES Page(s)

Butler v. Holy Cross Hospital,

No. 1:16 cv-05907 (N.D. Ill 2016)............. 8

Martinez-Gonzalez v. Catholic Schools of

the Archdiocese of San Juan Pension Plan,

No. 16-2077 (D.P.R. Jan. 9, 2017), ECF

FERRE TIE STEEDS See ATL EE a 8

Owens v. St. Anthony Medical Center, Inc.,

No. 1:14-cv-04068 (N.D. Ill 2017)............. 8

CONSTITUTION

CO (| 19

STATUTES AND REGULATIONS

ET TS ee ne 29

SR raininttmecsneehaesienennniinns 28

i russ ccencincnnsscisendsedenmeenemaueese 29

ai allied 28

le HT inrencncsnnscssssnsesensmesstnessens 16

Be re Oh iP cccccceccnccceccncecseesssesnece 24

ee ricincncnnguicbamieineeisunsenpanes 27

Employee Retirement Income Security Act

of 1974, 29 U.S.C. 1001 et. seq................. passim

ET RU 15

a inrncncrvntsonsssncnsesnacsnese 15

29 U.S.C. § 1002(33 KCI)... eececeeeeneneees 23

Fe Ob i iccccctccccascccncsscsnscesaceseces 29

iil

TABLE OF AUTHORITIES—Continued

Page(s)

Be eas ccnccccncatccssesnerssesesccoses 29

EE A ne ea 4

Multiemployer Pension Plan Amendments

Act of 1980, Pub. L. No. 96-364, 94 Stat.

Welfare Pension and Disclosure Act of

1958, Pub. L. No. 85-836, 72 Stat. 998

(1958) (amended 1962) .................0...000.000s 14

IRS Rev. Proc. 2011-44, 26 CFR 601.201 .... 13

OTHER AUTHORITIES

124 Cong. Rec 12108 (1978) ...............cccceeeees 26

124 Cong. Rec 16523 (1978) ...................0.020. 22

126 Cong. Rec 20180 (1980)...................000: 21

126 Cong. Rec 20245 (1980)......................... 26

Adam Geller, Law Shields Churches,

Leaves Pensions Unprotected, Associated

Press, Oct. 5, 2013, http://bigstory.ap.org

/article/law-shields-churches-leaves-pensi

i rocinnpsessnnsensciccssinatrinieteress 4,7,10

Adam Geller, Workers Find Retirement

Money Jeopardized by Loophole Treating

Hospitals, Agencies as Churches, Associ-

ated Press Oct. 5, 2013, http://Awww.fox

news.com/us/2013/10/05/workers-find-retir

iv

TABLE OF AUTHORITIES—Continued

Page(s)

Alicia H. Munnell, A Deed Well Done:

Pensions Protected, MarketWatch, June

26, 2013, http://blogs.marketwatch.com

American Academy of Actuaries, Issue

Brief: The 80% Funding Standard Myth

(July 2012), available at https://www.

actuary.org/files/80_Percent_Funding I

TT iratctncicesmnniccseetevinebeintwibentons 4

Claire Hughes, Employees of Former St.

Clare’s Hospital Face Pension Insolvency,

Albany Times Union, January 10, 2017,

http://Awww.timesunion.com/local/article/

Employees-of-former-St-Clare-s-Hospital-

I ininccnecsentcacnetintesoyeenionese 7

Danica Coto, Puerto Rico Church Strips

Teachers of Pension Amid _ Crisis;

Associated Press via Washington Post,

April 12, 2016, https://www.washington

post.com /world/the_americas/puerto-rico-

church-strips-teachers-of-pension-amid-

crisis/2016/04/12/80041ce6-0063-11e6-

8bb1-f124a43f8 4dc_story.html.................... 8

Ellen E. Schultz, JRS Nears Action on

Church Pensions, Wall Street Journal,

June 5, 2010, http:/Awww.wsj.com/art

icles/SB10001424052748704080 10457528

eT ARES TREE 5,9, 10, 14

v

TABLE OF AUTHORITIES—Continued

Page(s)

IRS GCM 39,007, 1983 WL 197946 (Nov. 2,

Jacklyn Wille, Feds Break Silence, Back

Hospitals in Church Pension Battle,

Bloomberg BNA Pension & Benefits

Daily (January 30, 2017)...............:....0-+-

James T. Herod, Church Plan Questions

and Answers, available at http://(www.ch

hsm.org/pdfs/Church-Plans-QAs.pdf (last

visited February 21, 2017)..................++++-

Karin Price Mueller, Bamboozled: How

Catholic hospitals get away with letting

pensions go broke, New Jersey Star

Ledger, Nov. 28, 2016, http://www.nj.com

/business/index.ssf/2016/11/bamboozled_

how_catholic_hospitals_get_ away_with_le.

Mary Jo Layton, Retirees from St. Mary’s

Hospital in Passaic May Lose Their

Pensions in Sale, New Jersey Record,

April 26, 2013, http:/Awww.northjersey.

com/news/health-news/retirees-from-st-ma

ry-s-hospital-in-passaic-may-lose-their-pen

sions-in-sale-1.624917 ...............cccceceeeeenee

24

26

12

10

vi

TABLE OF AUTHORITIES—Continued

Page(s)

Mary Williams Walsh, IRS Reversal on

‘Church Plan’ Rescues a Fuad, New

York Times, April 1, 2013, http://www.

nytimes.com/2013/ 04/02/business/an-irs-

reversal-rescues-a-pension-fund.htm]?_r

Miscellaneous Pension Bills: Hearings

Before the Subcomm. on Private Pension

Plans and Employee Fringe Benefits of

the Sen. Comm. on Finance, 96th Cong,

RTI cxntccccecessessccsovscssseseceoens 20, 22, 23

Nathan Gutman, Loophole Puts Pension

Plans at Risk, Jewish Daily Forward,

February 13, 2012, http://forward.com

6 mmaemaaeanaan

Norman Stein, An Article of Faith: The

Gratuity Theory of Pensions and Faux

Church Plans, ABA Section of Labor and

Employment Law, Employee Benefits

Newsletter (Summer 2014) ......................

Pension Rights Center, Church Plan

Listing, available at http-//www.pension

rights.org/sites/default/files/docs/church_

plan_refunds_1992-1998 2013.pdf (last

visited February 21, 2017) ...................00+

18

vii

TABLE OF AUTHORITIES—Continued

Page(s)

Pension Rights Center, Status of Church

Plan Refund Requests: As of 06/01/2005,

available at http://www.pensionrights

.org/sites/default/files/docs/listing of _pbgc_

church_plan_refunds_1991_-_2005.pdf (last

visited February 21, 2017) .....................-. 12

S. Rep. No. 383, 93d Cong, Ist Sess. (1973) ... 15

Tom Haydon, N.J. Workers at Religious

Institutions Fear Change Threatens Pen-

sions, New Jersey Star Ledger, January

12, 2012, http:/Awww.nj.com/news/index.

s8f/2012/01/nj_workers_ at_religious_inst

INTEREST OF AMICUS CURIAE

The Pension Rights Center is a national nonprofit

consumer organization that has been working for more

than four decades to protect and promote the retire-

ment security of American workers, retirees, and

their families. The Center advocates for laws and

regulations that expand retirement programs, and

make them fairer, more adequate and secure; helps

individuals obtain retirement benefits they have been

improperly denied; and works to preserve pension

protections conferred by Congress in the landmark

private pension law, the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et. seq.

The issue presented by this case, whether a pension

plan established by a religiously-affiliated hospital,

school, or social services organization is a “church plan”

exempt from federal law, affects millions of pension

plan participants around the country. Many of these

individuals have contacted the Pension Rights Center

because they have lost, or fear they will lose, all or

part of the pensions they had earned over a lifetime of

work. These include current and former employees of

Catholic hospitals, Jewish social services agencies, and

Protestant schools. The Center is filing this brief to

provide the Court with an understanding of how the

issues presented by this case will affect the retirement

security of these individuals, and the results of the

legislative analysis and research we have undertaken

on their behalf.

' The parties have consented to the filing of all briefs of amici

curiae. No counsel for a party authored this brief in whole or in

part. No person other than the amicus and its counsel made a

monetary contribution to its preparation or submission.

2

SUMMARY OF ARGUMENT

The Pension Rights Center has been contacted by

current and former employees of religiously-affiliated

hospitals, schools, and social services agencies around

the country who have asked for our help after learning

that the Internal Revenue Service (IRS) had issued a

private letter ruling stating that their pension plan is

a “church plan” and that their promised benefits are no

longer protected by ERISA — and are no longer guaran-

teed by the federal pension insurance program, the

Pension Benefit Guaranty Corporation (PBGC). In

each case, the participants were also told that the

church affiliated with their employers disclaimed any

responsibility for the plan.

Our analysis of the relevant sections of the law,

the Multiemployer Pension Plan Amendments Act of

1980 (MPPAA), Pub. L. No. 96-364, 94 Stat. 1303

(1980), and research into its legislative history demon-

strate conclusively that Congress did not exempt plans

established by religiously-affiliated hospitals, schools,

and social services agencies from the protections of

ERISA.

Petitioners’ contentions that upholding the deci-

sions below will cause “utter chaos,” “crippling costs,”

and “will force many organizations to stop offering

defined-benefit plans entirely” are unwarranted. These

claims overlook the fact that Petitioners or their prede-

cessors fully complied with ERISA for decades, as well

as the fact that government agencies and the courts

have ample discretion to mitigate any adverse impacts

to the plan sponsors while ensuring that their loyal,

long-serving employees will receive the pensions that

they have earned and were assured they would

receive.

3

ARGUMENT

I. IRS “Church Plan” Rulings Harm Pension

Plan Participants

A. Introduction

Petitioners contend that the church plan exemption

does not threaten the millions of individuals currently

participating in stand-alone pension plans of reli-

giously affiliated non-profit organizations. They claim

that despite the exemption, the plans of Petitioners

are responsibly funded and suggest that they pose no

threat to the retirement benefits earned by their

employees.

Even if it were true that Petitioners’ plans do not

pose a threat to retirement security—an assertion

that is questionable—the church plan exemption has

been claimed by other stand-alone agency plans that

are severely underfunded and has been claimed by

plans that have already failed to pay promised benefits

to their employees. The church exemption is not lim-

ited to well-funded plans. In Section C below, we

describe some of the situations where we have been

contacted by participants, which include situations

where people have lost or are about to lose their

pensions.

B. The Funded Status of Plans with IRS

Rulings

It is important to note that the suggestion that

the plans maintained by petitioners are adequately

funded is open to question. Petitioners assert that

their plans “are all funded a: a level above the IRS’s

80% minimum for ERISA plans.” Pet. Br. 10. But

there is no ERISA 80% minimum standard—plans are

required quickly to amortize funding gaps as they

4

emerge, although there are severe additional re-

strictions that apply when a plan falls below an 80%

funding level. See 29 U.S.C. § 1081(i). Indeed, the

American Academy of Actuaries has issued an issue

brief in which it characterizes the 80% funding stand-

ard as a myth:

An 80% funded ratio often has been cited in

recent years as a basis for whether a pension

plan is financially or “actuarially” sound. Left

unchallenged, this misinformation can gain

undue credibility with the observer, who may

accept and in turn rely on it as fact, thereby

establishing a mythic standard.’

Moreover, it is unclear by what measure the funding

ratios for Petitioners’ plans were determined. ERISA

imposes rules requiring more conservative assump-

tions than are sometimes used by plans that are not

subject to ERISA. Petitioners do not indicate whether

the funding ratios they report are based on ERISA

or raore liberal assumptions. And even slight differ-

ences in assumptions can result in enormous differ-

ences in funding ratios. Nor do Petitioners note

whether the funding ratios they report incorporate

various actuarial smoothing techniques, which can

also have a significant effect on the calculation of

funding ratios.®

? The American Academy of Actuaries, Issue Brief, The 80%

Funding Standard Myth (July 2012), https://www.actuary.org/

files/80_Percent_Funding IB_071912.pdf.

° It is also worth noting that newspaper articles about two of

the Petitioners that were published before the commencement of

this litigation showed funding levels considerably lower than

80%. The Associated Press reported that the funding level for

the Dignity Health retirement plan was 66 percent at the end of

2012. Adam Geller, Law Shields Churches, Leaves Pensions

5

C. How IRS Church Plan Rulings Affect

Individuals

The Pension Rights Center has been contacted by

current and former employees of religiously-affiliated

hospitals, schools, and social services agencies around

the country who have asked for our help after learning

that the Internal Revenue Service had issued a private

letter ruling stating that their pension plan is a “church

plan” and that their promised benefits are no longer

protected by ERISA — and are no longer guaranteed by

the federal pension insurance program, the Pension

Benefit Guaranty Corporation. In each case, the

participants were also told that the church affiliated

with their employers disclaimed all responsibility for

the plan.

1. In one situatio., involving an inner city hospital

in Orange, New Jersey, we were able to provide the

participants with information and assistance that

helped them obtain the withdrawal of the “church plan

ruling” and the restoration of pension insurance for

their pensions. In that case, the ruling was withdrawn

only eight months before the pension plan would have

run entirely out of money to pay pensions to the

plan’s nearly 800 participants.‘ In another situation,

Unprotected, Associated Press (Oct. 5, 2013), http//bigstory

-ap.org/article/law-shields-churches-leaves-pensions-unprotected.

The Wall Street Journal stated that the funding level for Saint

Peter’s pension plan was 64 percent in 2010. See Ellen E. Schultz,

IRS Nears Action on Church Pensions, Wall Street Journal (June

5, 2010), http//www.wsj.com/articles/SB10001424052748704080

104575286960632243300.

* In that situation, the hospital sponsoring the pension plan

had been a secular hospital for 100 years and had operated its

plan in full compliance with ERISA starting on January 1, 1974.

In 1998 it entered into a financial management agreement with

a Catholic health services entity, and in 2002, applied for and

6

we worked with participants in a Rockville, Maryland

Jewish community center who were able to persuade

the center’s board of directors to withdraw the private

letter ruling request before the IRS acted.°

2. In other instances, the participants contacted

us long after the church plan rulings had been issued

and after the decision had been made to sell their

employer, terminate their severely underfunded

plans, and give them a small fraction of the benefits

they had counted on receiving. St. Mary’s Hospital in

Passaic, New Jersey, a member of the Catholic Health

Association, one of the amici in this case, sponsored a

pension plan that became covered by ERISA in 1974,

but then received an IRS church plan ruling and a

refund of PBGC premiums in 2001. It stopped comply-

ing with ERISA’s funding requirements. The partici-

pants only learned about the IRS church plan ruling

12 years later when the hospital was being sold to a

non-religious corporation and were told that their

severely underfunded plan would be able to pay them

a lump sum equal to only 40 percent of their hard-

earned benefits. The nurses and orderlies reported

——E

received a church plan ruling from the IRS (along with a refund

of insurance premiums the plan had paid to the PBGC). Within a

year of receiving the ruling, the hospital filed for bankruptcy. It

was only at a meeting to discuss the shutting down of the hospital

that the employees learned for the first time that their pensions

were no longer protected by federal law. See Alicia H. Munnell,

A Deed Weill Done: Pensions Protected, MarketWatch: Encore,

June 26, 2013). http-//blogs.marketwatch.com/encore/2013/06/26

/a-deed-well-done-pensions-protected/

® Both of these situations are discussed in an April 1, 2013

New York Times article by Mary Williams Walsh, IRS Reversal

on ‘Church Plan’ Rescues a Fund, N.Y. Times, April 1, 2013

http?//www _.nytimes.com/2013/04/02/business/an-irs-reversal-rescu

es-a-pension-fund.html?_r=0

7

that they were shocked to learn that the religious

order that sponsored the hospital had “no legal

obligation to fund the plan.” Mary Jo Layton, Retirees

from St. Mary's Hospital in Passaic May Lose Their

Pensions in Sale, New Jersey Record, April 26, 2013.

http//www. northjersey. com/news/health-news/retirees

-from-st-mary-s-hospital-in-passaic-may-lose-their-pen

sions-in-sale-1.624917. Adam Geller, Workers Find

Retirement Money Jeopardized by Loophole Treating

Hospitals, Agencies as Churches, Associated Press,

October 5, 2013, http:/Awww.foxnews.com/us/2013/10/05/

workers-find-retirement-moneyjeopardized-by-loophole

-treating -hospitals/.

3. Most recently, we were contacted by Yardley,

Pennsylvania and Schenectady, New York retirees

who were notified toward the end of last year that their

former employers had received church plan rulings

years ago and because of poor investment perfor-

mance, their previously federally-guaranteed pension

plans, now administered by insurance companies, will

run out of money to pay their benefits. In the case of

St. James Hospital retirees, the money will run out in

five to seven months. For St. Clare’s Hospital retirees,

pension payments will end in seven to eleven years.

See Karin Price Mueller, Bamboozled: How Catholic

Hospitals Get Away With Letting Pensions Go Broke,

New Jersey Star Ledger (Nov. 28, 2016), www.nj.com

/business/index.ssf/2016/11/bamboozled_how _ catholic

_hospitals_get_away_with_le.html; Claire Hughes,

Employees of Former St. Clare’s Hospital Face Pension

Insolvency, Albany Times Union, January 10, 2017,

http://Awww.timesunion.com/local/article/Employees-of-

former-St-Clare-s-Hospital-face-10848930.php.

4. Other cases where retirees have been told that

they will lose their promised pensions as the result of

8

IRS church plan rulings are being litigated. Examples

include, Owens v. St. Anthony Medical Center, Inc.,

No. 1:14-cv-04068, 2015 U.S. Dist. LEXIS 79531 (N.D.

Ill. June 18, 2015) (plan terminated; reductions of

up to 40 percent when plan was terminated); Butler

v. Holy Cross Hospital, No. 1:16-cv-06907 (N.D. Ii.

filed June 6, 2016) (plan transferred to entity with

few assets before a merger, then terminated. Retirees

received half of the benefits they had earned); Martinez-

Gonzalez v. Cath. Sch. of the Archdioceses of San Juan

Pension Plan, No. 16-2077, 2011 U.S. Dist. LEXIS

11903 (N.D. Dll. Jan. 27, 2017) (plan terminated; pen-

sions eliminated for current and retired school

teachers); see Danica Coto, Puerto Rico Church Strips

Teachers of Pension Amid Crisis, Associated Press

via Washington Post, April 12, 2016, https://Awww.

washingtonpost.com/world/the _ americas/puerto-rico-chu

rch-strips-teachers-of-pension-amid-crisis/20 16/04/12/80

041ce6-0063-11e6-8bb1-f124243f84dc _story.html

We have also provided information to individuals

who have not yet lost benefits, including retired

Livingston, New Jersey social workers who were con-

cerned about a request for a church plan ruling

submitted by their former employer, a Jewish federa-

tion. See Nathan Gutman, Loophole Puts Pension

Plans at Risk, Jewish Daily Forward, February 13,

2012. http://forward.com/news/51150/oophole-puts-

pension-plans-at-risk/.

5. Among the individuals who have sought help

from the Center are current and former employees of

Saint Peter’s University Hospital, now part of Saint

Peter’s Healthcare System, one of the Petitioners in

this case.

They contacted us after reading a Wall Street

Journal article reporting that the Saint Peter’s

9

pension plan was only 64 percent funded and that the

hospital had sought a ruling from the Internal

Revenue Service that its plan was a “church plan”

exempt from all ERISA protections.’ The participants

were all long-service employees who had been assured

throughout their work lives that their pensions were

protected by the federal private pension law.

Over the years, they had receive. summary plan

booklets, benefit statements, funding reports, letters

and memoranda, assuring them that their pension

plan was protected by ERISA, and that their benefits

were insured by the federal pension insurance pro-

gram, the Pension Benefit Guaranty Corporation. Those

who contacted us — including nurses and orderlies, a

bookkeeper, a former hospital official who had served

as the hospital’s CEO, CFO, and COO for 24 years, and

the retired cafeteria supervisor who is the named

plaintiff in the Saint Peter’s litigation — were terrified

that they would not be able to pay their day-to-day

expenses in retirement if the IRS were to rule that

their plan was a church plan.’

Center staff worked closely with the Saint Peter's

participants, who first tried to persuade the hospital

to withdraw its church plan ruling request, and then

urged the Internal Revenue Service to deny the

request. When these efforts were unsuccessful, we

® See Schultz, supra, note 3.

’ See Tom Haydon, N..J. Workers at Religious Institutions Fear

Change Threatens Pensions, New Jersey Star Ledger, January

12, 2012, http:/Avww.nj.com/news/index.ssf/2012/01/nj_workers

_at_religious_instit_html

® Center staff provided fact sheets, prepared letters, memo-

randa, answered questions, and assisted employees with com-

ments to the IRS. We also convened conference calls and advised

10

introduced them to the law firms that are now

advocating on their behalf.

Saint Peter’s University Hospital established a

defined benefit pension plan for its employees in 1964.

Like the predecessor plans of the other Petitioners

in this case and all other single-employer agency

plans, the plan was required to be in full compliance

with ERISA as of its January 1, 1974 effective date.

The plan continued to comply with the law’s reporting,

disclosure, participation, vesting, accrual, fiduciary,

funding, and pension insurance requirements until

2006, when at the recommendation of a major consult-

ing firm, Ernst & Young, it applied for a church

plan private letter ruling.’ It continued to pay PBGC

premiums through 2010. Saint Peter’s did not receive

a church plan ruling until August 14, 2013, after it had

on the participants’ blog, “Save Your Saint Peter’s Pension,”

www.spuhpension.com.

° Many of the nation’s largest consulting firms urged their

religiously-affiliated nonprofit clients to apply for church plan

rulings. As the chief financial officer of a religiously-affiliated

hospital explained to the Wall Street Journal, the hospital had

accepted the advice of KPMG, a large consulting firm, to seek a

church plan ruling “for the cost savings and flexibility in

funding.” See Schultz, supra, note 3. Similarly, the Associated

Press reported on a PowerPoint presentation made to the Hospital

Center at Orange that included the statement “Deloitte and

Touche identified opportunity to designate plan as a ‘church plan’

Allows greater freedom in funding requirements.” See Geller,

supra, note 3. In another presentation, a lawyer for a pension

board selling its services noted that “church plans sound too

good to be true because of the potential cost savings and flexibility

they offer,” which he listed as exemption from funding, vesting,

disclosure, reporting, and PBGC insurance coverage. See James

T. Herod, Church Plan Questions and Answers, at Q-1, Q-2, avail-

able at http://Awww.chhsm.org/pdfs/Church-Plans-QAs.pdf (last

visited Feb. 21, 2017).

11

filed a Motion to Dismiss in the district court. It now

claims that it “voluntarily” complied with ERISA for

32 years, but its summary plan descriptions informed

employees that the plan was an ERISA plan, not

that the plan was voluntarily complying with ERISA

standards. The plan paid premiums to the PBGC, which

plans that are exempt from ERISA are not eligible to

do.” The IRS letter ruling stated that it was based on

the finding that the pension plan was administered by

a retirement plan committee.

Saint Peter’s is distinguishable from the other

Petitioners in not yet having received a refund of

premiums paid to the PBGC. According to PBGC

documents obtained under the Freedom of Infor-

mation Act, Dignity Health’s predecessor, Catholic

Health West, received $1.425 million in premium

refunds in 1993, after having complied fully with

ERISA for 19 years.’ Advocate Health’s predecessor,

Lutheran General, received a premiums refund of

$1.161 million in 1999 after complying with ERISA for

© See Statement of John Matuska, CEO, CFO, and COO of

Saint Peter’s University Hospital and member of its Retirement

Committee from 1977 to 2001. “From at least 1977 until 2006, the

Plan was operated as an ERISA-covered plan. As an ERISA

covered Plan, the Plan was fully funded in accordance with

ERISA, met ERISA reporting requirements, and paid insurance

premiums to the Pension Benefit Guaranty Corporation.” (J.A.

538)

4 See Items 162—168 on p. 2 of a listing of PBGC refunds

between 1992 and 1998, available at http:/Awww.pensionrights.

orp/sites/default/files/doca/church_plan_refunds_1992-1998_2013.

pdf. In the request for the IRS ruling, counsel for Dignity claimed

that the Catholic Healthcare West plan and its seven predecessor

plans had been “mistakenly” operated as though they were not

church plans, and had “mistakenly filed annual reports (Form

5500) and mistakenly paid PBGC premiums.” J.A. 651.

12

25 years.“ An estimated $50 million in PBGC

premiums have been refunded to pension plans that

received church plan rulings.”

Saint Peter’s is also distinguishable from the

Dignity and Advocate situations in that the partici-

pants were notified that their employer had applied

for a church plan ruling. This was the result of a

September 11, 2011, IRS Revenue Procedure requir-

ing, for the first time, that plans seeking church plan

1 See Item 215 on p. 24 of a listing of PBGC refunds between

1991 and 20065, available at http://www.pensionrights.org/sites

/default/files/doca/listing_of_pbgc_church_plan_refunds_1991_- 2006

.pdf. In a February 18, 2015, response to our FOIA request,

PBGC General Counsel Judith R. Starr denied our request for

documents relating to refunds between 1983-1991, because

“PBGC’s search did not locate any responsive documents with

information relating to church plans in that date range.” This

may explain why a premium refund to the Evangelical Hospital

Association Employees Pension Plan based on its March 7, 1991

IRS church plan ruling does not appear in the documents.

Petitioners claim that Advocate operated as a church plan since

1980 (Pet. Br. 11), but cites no documentation. It is highly likely

that this plan operated as an ERISA plan starting on January 1,

1974, as all other plans other than those established and

maintained by churches for their own employees and those

established by churches and maintained by church pension

boards were immediately subject to ERISA in 1974. Also, the IRS

position on stand-alone church plans was not formulated until

1982 and the hospital association did not request a church plan

letter until 1991.

3 See Jacklyn Wille, Feds Break Silence, Back Hospitals

in Church Pension Battle, Bloomberg BNA Pension & Benefits

Daily, January 30, 2017, http:?//www.bna.com/feds-break-silence-

n65798208023. “Between 1991 and 2013, the PBGC refunded

nearly $50 million in premium payments to employers that

claimed church plan status for their pension plans according tu

documents obtained by Bloomberg BNA under the Freedom of

Information Act.”

13

exemption letters from the IRS notify their employees

and explain to them the consequences of the exemp-

tion."* The Dignity and Advocate participants had no

realistic way of knowing that they had lost pension

insurance and other ERISA protections. That is because

generally the only people who knew that church plan

rulings had been requested and issued before the

issuance of the 2011 Revenue Procedure were the

requesting employers, IRS officials, and the consulting

firms that had persuaded the employers that applying

for church plan rulings was a too good to be true oppor-

tunity for saving money for their institutions.

Unless the decisions below are upheld, not only will

the pensions of Saint Peter’s participants and those of

current and future retirees in hundreds of other plans

sponsored by church-related hospitals, nursing homes,

schools, and community centers that have received

church plan rulings be at risk, but countless others

also will be in danger of losing their hard-earned and

long-promised benefits.

It is no exaggeration that legitimizing the IRS

rulings would result in a flood of new ruling requests.

“ In Rev. Proc. 2011-44, 26 C.F.R. 601.201, the IRS lifted a

five-year moratorium on church plan rulings and required that

applicants for future rulings notify participants that the issuance

of a church plan ruling would result in the loss of all ERISA

protections.

’ Although the rulings are published by the IRS and reported

in a trade press publication, they are so heavily redacted that

even if the Dignity and Advocate participants had known that

rulings existed there would have been no way of knowing the

identity of plans that had received rulings or that the rulings

meant that they would lose pension insurance and that their

plans would no longer be subject to minimum funding standards

or other ERISA protections.

14

In many cases, the PBGC premium refunds alone

would exceed the costs of obtaining the rulings, and

the rulings would allow the agencies to avoid paying

future PBGC premiums, and all of the costs associated

with reporting and disclosure.

Most important, the rulings would free the plans

from ERISA’s minimum funding standards. Although

Saint Peter's has increased the funding of its plan

since the Wall Street Journal reported in 2010 that its

funding level was only 64 percent, see Schultz, supra

note 3, it has already frozen the plan, and there would

be nothing to prevent it from lowering its annual

contributions significantly in favor of other agency

priorities, turning it into a wasting trust that could

quickly run out of money. Since the Diocese has

disclaimed financial responsibility for the Saint Peter’s

pension plan, the retirees’ fears of facing poverty in

retirement could all too-quickly become a reality.

Il. The History of the Church Plan Exemption

The Welfare and Pension Disclosure Act of 1958,

amended in 1962, was the first major Federal legisla-

tion attempting to safeguard the rights of participants

in employee benefit plane. Welfare Pension and Dis-

closure Act of 1958, Pub. L. No. 85-836, 72 Stat. 998

(1958) (amended 1962). Relying primarily on disclo-

sure and reporting, the Act included an exemption for

the plans of all tax-exempt entities, whether a secular

organization, a church, or a church-affiliated organiza-

tion. Id. § 4(b)(4).

In ERISA, which provided more substantive protec-

tions for participants, including minimum funding

standards and mandatory insurance for defined bene-

fit pension plans, Congress decided a blanket exemption

15

for non-profit charitable organizations was inappro-

priate. Instead, it included a broad exemption for plans

sponsored by governmental entities, ERISA § 3(32),

29 U.S.C. § 1002(32)( 1974) and a narrow exemption for

plans sponsored by churches, id. at § 3(33).

The statute defined a church plan as a “plan estab-

lished and maintained for its employees by a church

or a convention of association of churches.” Id. Such

plans could only cover employees of the church itself;

they were not permitted to cover employees of church-

affiliated agencies. There was, however, a grandfather

provision that permitted church plans in which affili-

ated agencies were already participating in 1974 to

continue to do so until 1982. Id. Thus, after 1982, non-

church employees could not participate in a church

plan. The statute was unambiguous in treating stand-

alone non-profit plans, whether affiliated with a church

or not, as plans subject to ERISA.

The legislative history of ERISA includes a single

explanation for the exemption for churches. A 1973

report on an early pension reform bill explained that

“(tlhe committee is concerned that the examinations

of books and records that may be required in any

particular case as part of the careful and responsible

administration of the insurance system might be

regarded as an unjustified invasion of the confidential

relationship that is believed to be appropriate with

regard to churches and their religious activities.” S.

Rep. No. 383, 93d Cong, 1st Sess. 81 (1973). The report

immediately clarified that the exemption for plans

established by churches would not apply to a plan

“if the plan is a multiemployer plan and one of the

employers in the plan is not a church.” Id. Thus, a

church plan could not be an amalgam of a church plan

and an agency plan.

16

Congress thus did not believe that the stated

rationale for the church exemption—exempting the

to programs that covered church-affiliated agencies,

such as Petitioners’ hospitals.

The exemption discussed in the 1973 Senate

committee report was substantially identical to the

one that ultimately was included in ERISA, except

that ERISA included the temporary grandfather

provision that permitted a pre-ERISA multiemployer

plan established and maintained by a church to

qualify for the church-plan exemption even though it

covered beth emplayees of a church and employees of

one or more affiliated agencies. I.R.C. § 414(eX3\(1974).

This special temporary provision was to expire on

December 31, 1982. Id.

Congress’s decision not to exempt non-profits,

whether secular or religious in purpose, from ERISA

represented the view that employees—such as nurses,

teachers, custodians, secretaries—were as entitled to

pensions that were funded, fair, and insured, as

employees who worked in the for-profit sector of the

economy. Moreover, a church’s plan would lose its

ERISA exemption if it included an agency plan or

included agency employees after 1982. In other words,

Congress decided not to indirectly subsidize charitable

organizations (as it had in the Pension and Welfare

Disclosure Act) by exempting them from the new

employers had to satisfy. The only exemption was a

limited one, for plans that covered employees of

churches but not employees of religious agencies.

When ERISA was enacted, then, there was no

question—as the Solicitor General's brief acknow!l-

edges, SG Br 3-4—that stand-alone agency plans were

17

not covered by the church plan exemption. The plans

of Petitioners, and their predecessor plans, were

subject to ERISA in 1974 and there is no reason to

think, and certainly nothing in the record to suggest,

that they did not fully comply until the IRS began

issuing ex parte rulings.

Churches were unhappy that the rule allowing a

church plan to cover agency employees would expire

after 1982 and began lobbying to make that rule

permanent. This lobbying group, which is currently

known as the Church Alliance and which has filed an

amicus curiae brief in this case, also lobbied for a

provision to make clear that plans maintained by

church pension boards—organizations such as corpo-

rations, trusts, or non-profit associations to administer

and/or fund the pension plan—were treated as church

plans even though not directly maintained by the

church itself (or by a convention or association of

churches). In 1980, the Church Alliance persuaded

Congress to amend ERISA to make the grandfather

rule permanent and to ensure that the IRS would not

challenge the bona fides of a church plan maintained

by a church pension board.

As noted, at the time of this lobbying, the stand-

alone plans of petitioners and every other church

agency were subject to ERISA. Yet no one—not the

Church Alliance, the Catholic Health Association or

their members, not a single church, pension board, or

church agency, asked for, argued for, or even men-

tioned the need for the exemption to be extended to

stand-alone plans. See generally Norman Stein, An

Article of Faith: The Gratuity Theory of Pensions

and Faux Church Plans, ABA Section of Labor and

Employment Law, Employee Benefits Newsletter

(Summer 2014). At the time, there were thousands

18

of such plans that had already brought themselves

into compliance with ERISA. If this were an issue,

someone surely would have said something explicit

about the need for agencies to sponsor their own

church plans free of actual church participation. And

presumably if this had been an issue, Congress would

have addressed it directly and not obliquely, by provid-

ing that a church plan is a “plan established or

maintained by a church, a convention or association of

churches, or a church agency.”

The lobbying was focused primarily on one issue:

expanding the grandfather rule. The lobbying was

based on a simple point: it made no sense for a church

plan that covered agency employees to have to sepa-

rate them out into a new plan after 1982. This would

create costs in the transition, would impose new and

high costs on the church agencies who could no longer

rely on church support (and presumably economies of

scale) for their plan, and would create obstacles to

ministers who moved from pulpit to agency and would

no longer have the seamlessness of benefits under a

single plan. These were the arguments. No one men-

tioned stand-alone plans sponsored by agencies without

church involvement. The only problem raised was

that existing plans covering both church and agency

employees would have to be fragmented after 1982.

Petitioners, however, now claim that they were

in fact asking for something different: approval for

religiously-affiliated agencies to sponsor their own

plans, not an extension of the status quo but a new

status quo, one in which any charitable organization

could sponsor its own unregulated employee benefit

19

plan if it had some affiliation with a church or conven-

tion of churches."* To make this claim, Petitioners

argue (i) that this was what Congress did when it

added to the statute a provision that was justified as

clarifying that a church plan did not lose its exemption

because it was maintained by a pension board; and (ii)

that the legislative history clearly demonstrates that

Congress intended to widen the exemption to include

agency stand-alone pension plans.

The legislative history constructed by Petitioners

and their amici is a phantasmagoria, constructed of a

few stray sentences removed from context and asser-

tions without record support. Petitioners’ alternative

legislative history makes three primary points:

a. Petitioners say that the Church Alliance and its

members, and the sponsors of the amendment, argued

that the IRS should not be defining what activities are

essential to the activities of the church. This is true,

but the argument was that the IRS should not tell a

church who may participate in a plan that the church

itself established and maintained. No one argued that

agencies should be able to establish their own exempt

plans.

b. Petitioners also cite claims by the legislation’s

sponsors indicating that agency plans would have to

bear additional costs if church plans were not able to

continue to include affiliated agencies and that it

was doubtful that some of these agency plans could

financially bear the additional costs of complying

with ERISA. But the legislative sponsors were

‘6 This, of course, would create First Amendment establish-

ment issues since a church hospital could sponsor an unregulated

pension plan but a secular charity with an identical charitable

mission could not.

20

referring to agencies that were currently participating

in multiemployer church plans covered by the tempo-

rary grandfather provision and they were arguing that

such agencies should continue to be able to participate

in such church plans beyond 1982. They were not

arguing that agency stand-alone plans, which were

already subject to ERISA (and had been for more than

half a decade at the time of the amendments), should

now be exempted.

c. Petitioners also argue that two statements, one

by Daniel Halperin, then Assistant Secretary of the

Treasury for Tax Policy, and one by Senator Jacob

Javits, indicate that the legislation was intended to

exempt stand-alone agency plans from ERISA. But

neither statement supports Petitioners’ position.

Assistant Secretary Halperin stated in oral testi-

mony before the Senate Finance Committee that

“we see no justification for expansion of the complete

exemption from ERISA from churches to church-related

agencies. Therefore we have opposed S. 1090 as it

stands. Our position on this bill and on S. 1091 will be

set forth in detail in the written statement for the

record.” Miscellaneous Pension Bills: Hearings Before

the Subcomm. on Private Pension Plans and Employee

Fringe Benefits of the Sen. Comm. on Finance, 96th

Cong., Ist Sess. 190 (1979) (Statement of Daniel

Halperin, Assistant Secretary, Department of Treasury).

That written statement makes clear that Mr. Halperin

was referring to the permanent extension of the

grandfather rule permitting church plans to cover

agency employees. In that statement, he notes that

S. 1091 would make three changes in the definition of

church plans, the second of which is pertinent here:

“Second, the bill would define the term

‘employee,’ for purposes of determining who

21

may participate in a church plan to. . . include

any employee of an organization which is

controlled by or associated with the church or

a convention or association of churches so

long as such organization is exempt from tax.

These provisions would substantially expand

the concept of church plan and by allowing

church agencies to be included in church

plans would effectively make the temporary

rule contained in current law permanent.

“The effect of the current [temporary

grandfather] rule is that employees of church

agencies will, after 1982, be entitled to the full

protections provided by ERISA. We believe

this is beneficial. . . Therefore we oppose the

provision of S. 1091 which would extend the

temporary rule relating to church agencies .. .”

Id. at 223.

This makes clear that the Department of the Treas-

ury was objecting to the extension of the temporary

grandfather rule, which permitted plans sponsored by

churches to also include church agencies. The Treas-

ury was not commenting on a non-existent proposal to

exempt stand-alone agency plans that were already

subject to ERISA.

Similarly, Senator Javits made a statement on the

Senate floor indicating concern with S. 1091 because

“it exempts those who work for schools and similar

institutions that are church-related.” 126 Cong. Rec.

20,180 (1980). But there is no reason to believe that

Senator Javits was doing more than expressing his

displeasure with S. 1091 making the temporary

grandfather rule allowing a plan established and

maintained by a church to continue to include agencies

22

and their employees. Yes, the Javits statement could

have described legislation not under consideration,

but it is far more likely that Javits was, like Assistant

Secretary Halperin, responding to the legislation that

was before the Senate, which purported only to extend

the grandfather provision and clarify that a church

plan did not lose its exemption because it was

maintained by a church pension board.

d. Petitioners argue that nothing in the legislative

history “suggests .. . any reason for” a requirement

that a church must establish a pension plan main-

tained by a church pension board or similar organization.

Pet. Br. at 40. This assertion is incorrect.

The original church-plan amendment language

proposed in S. 1091 provided that a “plan established

and maintained for its employees (or their beneficiar-

ies) by a church or by a convention or association of

churches includes a plan established and maintained

by an organization, whether a civil law corporation or

otherwise, whose principal purpose is the administra-

tion 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 associa-

tion of churches, if such organization is controlled

by or associated with a church or a convention or

association of churches.” Miscellaneous Pension Bills:

Hearings Before the Subcomm. on Private Pension

Plans and Employee Fringe Benefits of the Sen. Comm.

on Finance, 96th Cong., Ist Sess. 101, 102-103 (1979);

see also 124 Cong. Rec. 16,523 (1978\lJanguage in

1978 bill introduced by Senator Talmadge\emphasis

supplied).

The Department of the Treasury objected to this

language because it gave church pension boards the

power to establish church plans. Representing the

23

Department, Daniel Halperin submitted a written

statement that said the following:

In proposed Treasury regulations issued on

April 9, 1977, no provision was made to allow

a program maintained by a pension board or

other separately incorporated organization to

maintain a church plan. Through written

comments and at a public hearing . . . with

respect to the proposed regulations, commen-

tators suggested that the term church plan

should include a plan which is administered

by a separately incorporated organization

such as a pension board or a bank. We agree

that such a provision is appropriate.

However, S. 1091 would go substantially

further by permitting a plan which is estab-

lished and maintained by the administering

organization to be considered a church plan.

... we do not feel it is appropriate to expand

the definition of church plan this far.

Miscellaneous Pension Bills: Hearings Before the

Subcomm. on Private Pension Plans and Employee

Fringe Benefits of the Sen. Comm. on Finance, 96th

Cong., Ist Sess. 222 (1979).

At some point after the hearings, the language on

plans administered by church boards was changed.

Under the revised language, which is now embodied

in ERISA § 3(33XCXi), 29 U.S.C. § 1002(33)\(CXi), a

plan “established and maintained” by a church for its

employees includes a plan “maintained” by a (C)(i)

organization. The power to “establish” a church plan

under (C)(i) is thus lodged exclusively with churches

and conventions or associations of churches, not (Ci)

24

organizations. If a church or a convention or associa-

tion of churches is unwilling to establish a benefit

plan, it is not a “church” plan under the statute.

Ill. Statutory language and legislative

history show that Congress intended that

(C)(i) only exempt church-established

plans that are maintained by church

pension boards.

A 1982 General Counsel Memorandum, IRS GCM

39,007, 1983 WL 197946 (Nov. 2, 1982), and a series

of private letter rulings that followed, stated that

a plan that was not established by a church could

nonetheless be exempt from ERISA if the plan were

maintained by an administrative committee of the

plan sponsor. In the 1982 GCM and each of the succes-

sive rulings, the rationale supporting this conclusion

was the text of (C)(i) stating that a plan of a church-

related agency could be treated as a church plan if it

was “maintained by an organization, whether a civil

law corporation or otherwise” that had as its principal

purpose the administration or funding of the plan.

The legislative history makes plain that this provi-

sion was intended to apply to church pension boards,

not a committee of one or more agency employees that

administer the pension plan. (Virtually every pension

plan is administered by such a committee.) The IRS

position is that such an administrative committee is

“an organization” and that the committee “maintains”

the pension plan.””

The Saint Peter’s ruling, which is virtually identical to

almost all of the rulings issued to pension plans, is illustrative.

The ruling notes that the plan was established in 1964 and is

administered by a Retirement Plan Committee. It then quotes the

language of Section 414(eX3A) which states that a church plan

25

As Petitioners correctly point out, the issue of

whether this language supports the IRS position is not

within the scope of the question presented to this

Court. (Pet. Br. 22, fn.4) However, examination of this

language can illuminate the question that is before the

Court, namely whether Congress intended for plans

that were neither established and maintained by a

church nor established by a church and maintained by

a church pension board to be denied the protections of

ERISA.

The only way to bring a plan’s internal administra-

tive committee within the statutory language would be

to find that it not only has as its principal purpose the

administration of a plan (which all administrative

committees do) but also that it is “an organization,

whether a civil law corporation or otherwise,” that

maintains the plan.

Plainly, a pension plan’s administrative committee

is not a civil law corporation. It only fits within the

(Ci) fr umework if it can come within the statutory

phrase “or otherwise.” This is how the IRS appears to

have construed the language. In other words it is

“includes a plan maintained by an organization, whether a civil

law corporation or otherwise,...” Next it states that for an organi-

zation that is not itself a church, the plan must be administered

or funded (or both) by an organization described in section

414(eX3)A) of the Code. It then finds that the sole purpose of the

Saint Peter’s Retirement Plan Committee is the administration

of the plan. Finally, the ruling concludes that “the Committee

constitutes an organization described in 414(eX3)A) of the Code.

(J.A. 379 - 392)

The Saint Peter’s ruling is also similar to many others in

church had been established only after the initial request for a

ruling had been filed. This “control” is then found sufficient to be

applied retroactively to January 1, 1974.

26

simply a contentless label that can be affixed to any

group or committee of people, indeed even a committee

of one person. See I.R.S. P.L.R. 8851074, 1988 PLR

LEXIS 2970 (Sept. 28, 1988)(single plan administrator

can qualify as an organization).

However, the legislative history of the phrase,

shows that the language was designed to apply to

church pension boards. The words “or otherwise” were

not meant to sap the word “organization” of content,

but to clarify that an actual organization—a church

pension board—did not have to be incorporated, but

could also have a different organizational structure.

As Representative Barber Conable explained in

1978, when introducing the first version of the church

plan amendments, “[a] pension board is usually incor-

porated because the church does not want the funds

set aside for retirement purposes to be subject to the

general creditors of the church.” 124 Cong. Rec. 12108

(1978).

However, Representative Conable and other mem-

bers of Congress recognized that church pension

boards could also have non-corporate structures.

When, in a colloquy on July 29, 1980, Senator

Talmadge referred to church pension boards as

“separate incorporated organizations,” Senator Long

quickly corrected him, saying that “the bill recognizes

the status of a church plan maintained by a pension

board by providing that a plan maintained by an

organization, whether separately incorporated

or not....is a church plan...7126 CONG. REC 20245

(1980)(statements of Sen. Herman Talmadge and Sen.

Russell Long)

This correction was necessary because some of

the churches and church pension boards seeking the

27

amendments were not incorporated. They were struc-

tured either as trusts (for example, the Rabbinical

Pension Board now the Pension Reform Board) or

unincorporated associations. These are alternative

arrangements for tax exempt nonprofit organizations

that are authorized by Section 501(c)\(3) of the Internal

Revenue Code.

In other words, there is nothing anywhere to suggest

that the “or otherwise” language was meant to demote

“organizations” to the level of an employer-created

internal pension plan committee, which is part of the

employer and is not a separate organization apart

from the employer. The “or otherwise” language was

simply to clarify that a church pension board did not

have to be incorporated. The conclusion is inescapable

that Congress only intended for (C)(i) to exempt plans

established by churches that were maintained by

church pension boards.

IV. ERISA Does Not Permit Voluntary,

Revocable ERISA Plans

Petitioner Saint Peter’s Healthcare System con-

tends that it “for many years voluntarily complied

with ERISA standards.” Pet. Br. 13. Voluntary

compliance apparently included paying PBGC insur-

ance premiums for insurance that is not available to

non-ERISA plans and representing to its employees

that their plan was an ERISA plan, subject to all

ERISA protections and covered by PBGC insurance.

(J.A. 399-403).

‘8 These statements are from the plan’s summary plan descrip-

to “contact the nearest office of the U.S. Labor-Management

Services Administration, Department of Labor” if they have

questions about their “rights under ERISA.”

28

Saint Peter’s statement is almost certainly dis-

ingenuous: it either believed that it was sponsoring

an actual ERISA plan, which is not what it now claims,

or it deliberately deceived its employees into believing

that their plan was protected by ERISA.

Petitioners note in their brief, Pet. Br. 13, that ERISA

does include a provision that allows church plans

to forego church plan status, but the election is irrev-

ocable once made. IRC § 410(d\2X1974). In other

words, once a church plan tells employees that their

benefits are protected by federal law and federal

pension insurance, the church must thereafter con-

form the plan to ERISA’s minimum standards. Yet

Saint Peter’s claims that it can avoid the irrevocability

requirement by misleading—either intentionally or

negligently—its employees into believing that their

benefits are protected by ERISA. The agencies

enforcing ERISA should be reluctant to tolerate this

type of deception, especially when it runs for more

than three decades.

V. Petitioners Exaggerate the Conse-

quences to Plan Sponsors of Affirmance

of the Decisions Below and Ignore the

Threat to Retirement Security that

these “Church Plans” Fose to Agency

Employees and Their Families.

Petitioners predict that affirmance of the three

circuit decisions below will “sow utter chaos” for every-

one. They assert that plans will have to adhere to

ERISA’s funding rules, although the IRS would be

barred by the private letter rulings from collecting

penalties for past funding violations and has broad

power to issue funding waivers to ameliorate future

funding requirements to prevent hardship. IRC

§ 412(c)\(1). (And if Petitioners’ brief is credited, their

29

plans already are in or near compliance with ERISA

funding standards. Pet. Br. 10.) They also claim that

the plans will have to conform to ERISA’s vesting

rules, although Petitioners’ plans, like most other

stand-alone agency plans, were written to conform to

the vesting rules during the period they operated as

ERISA plans and there is no record support that

conforming will be problematic or expensive. Moreover,

the IRS can by regulatory guidance limit the applica-

tion of ERISA rules that bar amendments reducing

certain types of benefits. I.R.C. § 411(dX6). As for

ERISA fines for non-disclosure, they are awarded in

the discretion of courts, ERISA § 502(c)(1),(3), 29 USC

§ 1032(cX1),(3), and it is improbable that courts will

levy penalties on plans that failed to make disclosures

because of their good faith belief that they were exempt.

The PBGC is unlikely to seek penalties for the pre-

miums. See ERISA § 4007(b), 29 U.S.C. § 1307(b).

In addition, the IRS and PBGC can waive all tax

penalties for non-compliance and can provide various

forms of relief allowing plans to ease into full tax and

ERISA compliance.

Most important, ERISA is an equitable statute and

the courts themselves may issue remedies in these

cases that would limit the effects on Petitioners and

similarly situated religiously-affiliated nonprofit organ-

izations. The Pension Rights Center would strongly

support and advocate for appropriate efforts to amelio-

rate hardship. And of course Congress can also

fashion relief if such relief were needed.

The hospitals also raise the specter of terminated

agency defined-benefit plans. In fact, as noted above,

Saint Peter’s has already frozen its pension plan for

new entries, and many religiously-affiliated nonprofits

now only offer 403(b) or other defined contribution

30

plans to current workers. The principal concern of

Saint Peter’s longer-service employees and retirees,

anc those at other hospitals, schools, and social ser-

vices agencies, is to preserve the pensions they were

assured they would receive. If asked, younger workers,

might well prefer another type of plan on which they

can depend instead of a poorly funded, uninsured

defined benefit plans that their employers can amend

to reduce already earned benefits.

Significantly, nowhere do Petitioners even acknowl-

edge that these unfunded agency plans—plans that

the churches to whom the agencies are affiliated

disclaim any responsibility—pose a genuine threat to

the financial security of hundreds of thousands of men

and woman who did nothing wrong other than give up

current wages for deferred compensation, in the belief

that their plans, sponsored by faith-based entities,

would live up to their promises.

CONCLUSION

The judgments of the courts below should be

affirmed.

Respectfully submitted,

NORMAN P. STEIN KAREN W. FERGUSON

Of Counsel Counsel of Record

3320 Market Street PENSION RIGHTS CENTER

Philadelphia, PA 19104 1360 Connecticut Avenue N.W

(205) 410-0989 Washington, DC 20036

nps32@drexel.edu (202) 296-3776

kferguson@pensionrights.org

Counsel for Amicus Curiae

February 23, 2017