PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-1172
_____________
LAURENCE KAPLAN, on behalf of himself,
individually, and on behalf of all others similarly situated
v.
SAINT PETER’S HEALTHCARE SYSTEM;
RONALD C. RAK; SUSAN BALLESTERO, an individual;
GARRICK STOLDT, an individual;
JOHN and JANE DOES 1–20
Saint Peter’s Healthcare System, Ronald
C. Rak, Susan Ballestero, Garrick Stoldt,
Appellants
________________
Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 3-13-cv-02941)
District Judge: Honorable Michael A. Shipp
________________
Argued October 8, 2015
Before: McKEE, Chief Judge, AMBRO, and HARDIMAN,
Circuit Judges
(Opinion filed: December 29, 2015)
Jeffrey J. Greenbaum, Esquire (Argued)
James M. Hirschhorn, Esquire
Sills, Cummis & Gross
One Riverfront Plaza
Newark, NJ 07102
Katherine M. Lieb, Esquire
Sills, Cummis & Gross
One Rockefeller Plaza
New York, NY 10020
Counsel for Appellants
Saint Peter’s Healthcare System, Ronald C. Rak,
Susan Ballestero, Garrick Stoldt
Monya M. Bunch, Esquire
Karen L. Handorf, Esquire (Argued)
Mathew A. Smith, Esquire
Michelle C. Yau, Esquire
Cohen Milstein Sellers & Toll PLLC
1100 New York Avenue, N.W.
West Tower, Suite 500
Washington, DC 20005
Ron Kilgard, Esquire
Keller Rohrback
3101 North Central Avenue, Suite 1400
Phoenix, AZ 85012
2
Lynn L. Sarko, Esquire
Havila C. Unrein, Esquire
Keller Rohrback
1201 Third Avenue, Suite 3200
Seattle, WA 98101
Counsel for Appellee
Jeremy P. Blumenfeld, Esquire
Melissa D. Hill, Esquire
Morgan Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Amicus Appellant
Catholic Health East
Mark E. Chopko, Esquire
Marissa Parker, Esquire
Brandon Riley, Esquire
Stradley, Ronon, Stevens & Young
1250 Connecticut Avenue, N.W.
Washington, DC 20036
Lisa Gilden, Esquire
The Catholic Health Association of the United States
1875 Eye Street, N.W., Suite 1000
Washington, DC 20006
Counsel for Amicus Appellant
Catholic Health Association of the United States
Jared M. Haynie, Esquire
3
Chipman Gasser
2000 South Colorado Boulevard
Tower One, Suite 7500
Denver, CO 80222
James A. Sonne, Esquire
Stanford Law School
Religious Liberty Clinic
559 Nathan Abbott Way
Crown Quadrangle
Stanford, CA 94305
Counsel for Amicus Appellant
Becket Fund for Religious Liberty
Mary E. Signorille, Esquire
AARP Foundation Litigation
601 E Street, N.W.
Washington, DC 20049
Roberta L. Steele, Esquire
National Employment Lawyers Association
2201 Broadway, Suite 402
Oakland, CA 94612
Counsel for Amicus Appellees
AARP and National Employment Lawyers Association
Laurence A. Hansen, Esquire
Hugh S. Balsam, Esquire
Locke Lord
111 South Wacker Drive, Suite 4300
Chicago, IL 60606
4
G. Daniel Miller, Esquire
Conner & Winters, LLP
1627 Eye Street, N.W., Suite 900
Washington, DC 20006
Counsel for Amicus Appellant
GuideStone Financial Resources of
the Southern Baptist Convention
Richard H. Frankel, Esquire
Drexel University
Thomas R. Kline School of Law
3320 Market Street
Philadelphia, PA 19104
Karen W. Ferguson, Esquire
Norman P. Stein, Esquire
Pension Rights Center
1350 Connecticut Avenue, N.W., Suite 206
Washington, DC 20036
Counsel for Amicus Appellee
Pension Rights Center
Patrick C. Elliott, Esquire
Andrew L. Seidel, Esquire
Freedom from Religion Foundation
P.O. Box 750
10 North Henry Street
Madison, WI 53703
Counsel for Amicus Appellee
Freedom from Religion Foundation
5
Gregory M. Lipper, Esquire
Ayesha N. Kahn, Esquire
Americans United for Separation of Church and State
1901 L Street, N.W., Suite 400
Washington, DC 20005
Daniel Mach, Esquire
American Civil Liberties Union Foundation
915 15th Street, N.W., 6th Floor
Washington, DC 20005
Counsel for Amicus Appellees
ACLU, ACLU of New Jersey, and
Americans United for Separation of Church and State
________________
OPINION OF THE COURT
________________
AMBRO, Circuit Judge
Subsection 4(b)(2) of the Employee Retirement
Income Security Act (“ERISA”) provides an exemption for
church plans. These plans need not comply with a host of
ERISA provisions, including fiduciary obligations and
minimum-funding rules. ERISA § 3(33)(A) defines a church
plan as one that is “established and maintained . . . for its
employees (or their beneficiaries)” by a tax-exempt church.
Subsection 3(33)(C)(i) clarifies that a “plan established and
maintained” by a church includes a plan maintained by a
qualifying agency of a church. But can a church agency, in
addition to maintaining an exempt church plan, also establish
such a plan? The District Court concluded that it cannot. We
6
agree. Per the plain text of ERISA, only a church can
establish a plan that qualifies for an exemption under
§ 4(b)(2).1 Because no church established St. Peter’s
Healthcare System’s retirement plan, we hold that it is
ineligible for a church plan exemption.
I. Background
St. Peter’s is a non-profit healthcare entity that runs a
variety of facilities, including a hospital, and employs over
2,800 people. Though it is not a church, St. Peter’s has ties to
the Roman Catholic Diocese of Metuchen, New Jersey. For
instance, the Bishop of Metuchen appoints all but two
members of its Board of Governors. The Bishop also retains
veto authority over the Board’s actions. Meanwhile, the
hospital run by St. Peter’s features numerous indicia of the
church relationship, including daily Mass and the presence of
Catholic devotional pictures and statues throughout the
building.
St. Peter’s established the retirement plan before us in
1974. It is a non-contributory defined benefit plan, and it
covers substantially all employees of St. Peter’s hired before
July 1, 2010. For more than three decades, St. Peter’s
operated the plan subject to ERISA and represented to its
employees in plan documents and other materials that it was
complying with ERISA. Eventually, however, St. Peter’s
began to consider whether the church plan exemption might
apply to its retirement plan. To that end, it filed an application
in 2006 with the Internal Revenue Service seeking such an
exemption. The Internal Revenue Code borrows its definition
of a church plan from ERISA. See 26 U.S.C. § 414(e).
1
Subsection 4(b)(2) of ERISA is codified at 29 U.S.C.
§ 1003(b)(2). Subsection 3(33) is located at 29 U.S.C.
§ 1002(33).
7
Although the application signaled the belief of St. Peter’s that
it qualified for an ERISA exemption, it continued to pay
ERISA-mandated insurance premiums for the retirement plan
while the application was pending.
In May 2013, Laurence Kaplan, who worked for St.
Peter’s from 1985 to 1999, filed a putative class action
alleging that St. Peter’s failed to comply with various ERISA
obligations.2 Among other things, the complaint alleged that,
in the years after St. Peter’s filed the application for a church
plan exemption, it did not provide ERISA-compliant
summary plan descriptions or pension benefits statements.
The most serious allegation was that, as of the end of 2011,
the plan was underfunded by more than $70 million.3 In
August 2013, while the lawsuit was pending, St. Peter’s
received a private letter ruling from the IRS affirming the
plan’s status as an exempt church plan for tax purposes.4
St. Peter’s moved to dismiss the suit, claiming that it
qualified for ERISA’s church plan exemption and hence was
not required to comply with the provisions Kaplan claimed it
had violated. Specifically, St. Peter’s argued that the claimed
exemption robbed the District Court of subject matter
jurisdiction over the ERISA allegations and in the alternative
2
The complaint also names certain individuals employed by
St. Peter’s. We refer to these individuals and their employer
collectively as “St. Peter’s.”
3
On appeal, Kaplan focuses on numbers from 2014. He says
that those show that the plan was underfunded at that time by
approximately $30 million. See Appellee’s Br. at 5.
4
As discussed in Part VII, this private letter ruling does not
control our inquiry.
8
that the complaint failed to state a claim. The District Court
denied the motion after concluding that St. Peter’s could not
establish an exempt church plan because it is not a church.
In reviewing the District Court’s conclusion, we do not
write on a blank slate. In the decades following the current
church plan definition’s enactment in 1980, various courts
have assumed that entities that are not themselves churches,
but have sufficiently strong ties to churches, can establish
exempt church plans. See, e.g., Catholic Charities of Me., Inc.
v. City of Portland, 304 F. Supp. 2d 77, 84–85 (D. Me. 2004);
Humphrey v. Sisters of St. Francis Health Servs., Inc., 979 F.
Supp. 781, 785–86 (N.D. Ind. 1997). The only Circuit to
consider the question came to the same conclusion, albeit in a
dictum. See Lown v. Cont’l Cas. Co., 238 F.3d 543, 547 (4th
Cir. 2001). However, a new wave of litigation, of which this
case is a part, has sprung up in the past few years and has
presented an argument not previously considered by courts—
that the actual words of the church plan definition preclude
this result.
Riding this new wave, three other courts have agreed
with the District Court here that only churches can establish
exempt church plans. See Stapleton v. Advocate Health Care
Network, 76 F. Supp. 3d 796, 806 (N.D. Ill. 2014); Medina v.
Catholic Health Initiatives, No. 13-CV-01249, 2014 WL
3408690, at *9 (D. Colo. July 9, 2014); Rollins v. Dignity
Health, 19 F. Supp. 3d 909, 917 (N.D. Cal. 2013). By
contrast, three courts have ruled that plans established and
maintained by church agencies can qualify for an exemption.
See Lann v. Trinity Health Corp., No. 8:14-cv-02237 (D. Md.
Feb. 23, 2015) (ECF No. 54 at 1); Medina v. Catholic Health
Initiatives, No. 13-CV-01249, 2014 WL 4244012, at *2 (D.
9
Colo. Aug. 26, 2014);5 Overall v. Ascension, 23 F. Supp. 3d
816, 829 (E.D. Mich. 2014). The Seventh Circuit heard
argument in Stapleton on September 18, 2015, but we are the
first Circuit to decide the question in a holding.
II. Jurisdiction and Standard of Review
The District Court had jurisdiction under 28 U.S.C.
§ 1331 and 29 U.S.C. § 1132(e)(1). St. Peter’s filed a motion
to dismiss, which the District Court denied. However, the
Court permitted St. Peter’s to seek leave from us to appeal,
and we accepted the interlocutory appeal. We thus have
jurisdiction under 28 U.S.C. § 1292(b). Our review of
questions of law certified under this provision is plenary. See
Florence v. Bd. of Chosen Freeholders of Cnty. of Burlington,
621 F.3d 296, 301 (3d Cir. 2010).
III. The Church Plan Exemption
When Congress enacted ERISA in 1974, § 3(33)
defined a church plan as follows:
(33)(A) The term “church plan” means
(i) a plan established and maintained for its
employees by a church or by a convention or
5
The August 26, 2014 District Court opinion in Medina,
written by Judge Blackburn, was on review of the July 9,
2014 opinion, written by Magistrate Judge Mix. Judge
Blackburn rejected Magistrate Judge Mix’s recommendation.
In a later opinion, Judge Blackburn granted summary
judgment to the defendants on the basis of a church plan
exemption. Medina v. Catholic Health Initiatives, No. 13-CV-
01249, 2015 WL 8144956, at *14 (D. Colo. Dec. 8, 2015).
10
association of churches which is exempt from
tax under section 501 of the Internal Revenue
Code of 1954, or (ii) a plan described in
subparagraph (C).
...
(C) . . . [A] plan in existence on January
1, 1974, shall be treated as a “church plan” if it
is established and maintained by a church or
convention or association of churches for its
employees and employees of one or more
agencies of such church (or convention or
association) . . . , and if such church (or
convention or association) and each such
agency is exempt from tax under section 501 of
the Internal Revenue Code of 1954. The first
sentence of this subparagraph shall not apply to
any plan maintained for employees of an
agency with respect to which the plan was not
maintained on January 1, 1974. The first
sentence of this subparagraph shall not apply
with respect to any plan for any plan year
beginning after December 31, 1982.
In the years following ERISA’s enactment, this
definition led to two problems, both of which are summarized
here but discussed in more detail in Part VI below. First,
experience showed that many churches established their own
plans but relied on church pension boards for plan
maintenance. Churches that followed this practice were
concerned that their plans might not technically qualify as
“established and maintained” by a church. Second, churches
wanted the ability to continue to cover the employees of
church agencies, such as church hospitals, after the sunset
provision in § 3(33)(C) took effect at the end of 1982.
11
Congress addressed both concerns as part of the
Multiemployer Pension Plan Amendments Act of 1980,
which amended § 3(33) as follows:
(33)(A) The term “church plan” means a
plan established and maintained . . . for its
employees (or their beneficiaries) by a church
or by a convention or association of churches
which is exempt from tax under section 501 of
Title 26.
...
(C) For purposes of [paragraph 33]—
(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.6
6
Although the statute speaks in terms of churches along with
conventions or associations of churches, for ease of reference
we refer to them collectively as “churches.” Additionally, we
refer to the principal-purpose entities described in
12
(ii) The term employee of a church or a
convention or association of churches
includes—
(I) a duly ordained, commissioned, or
licensed minister of a church in
the exercise of his ministry,
regardless of the source of his
compensation;
(II) an employee of an organization,
whether a civil law corporation or
otherwise, which is exempt from
tax under section 501 of Title
26 and which is controlled by or
associated with a church or a
convention or association of
churches . . . .
This new definition solved both of the issues that
stemmed from the 1974 definition. Specifically, new
§ 3(33)(C)(i) unambiguously brought within the exemption
plans established by churches but maintained by church
pension boards. And new § 3(33)(C)(ii) allowed churches to
establish plans that covered church agency employees even
after the sunset provision kicked in at the end of 1982.
However, St. Peter’s argues that the 1980 amendments
also accomplished a third result—annulling the requirement
that a church establish a plan in order for it to qualify for an
exemption. Under its proposed reading, any plan can qualify
for the exemption regardless of who establishes it as long as it
meets the maintenance requirements of § 3(33)(C)(i). As
§ 3(33)(C)(i) interchangeably as “church agencies” or
“pension boards.”
13
noted below, we believe this reading fails to follow the actual
words of the provision.
IV. Plain Meaning
We start our review, as we must, with a familiar
question: Do the words of the statute have “a plain and
unambiguous meaning with regard to the particular dispute in
the case”? Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450
(2002) (internal quotation marks omitted). Here, the statute
has a plain meaning, and that meaning sets the result.
Subsection 3(33)(A) requires that all exempt plans be
established by a church. Prior to 1980, a plan needed to be
established and maintained by a church. The 1980
amendments provided an alternate way of meeting the
maintenance requirement by allowing plans maintained by
church agencies to fall within the exemption. But they did not
do away with the requirement that a church establish a plan in
the first instance. As the District Court explained,
[t]he key to this interpretation is to recognize
that subsection [3(33)]A is the gatekeeper to the
church plan exemption: although the church
plan definition, as defined in subsection A, is
expanded by subsection C to include plans
maintained by a tax-exempt organization, it
nevertheless requires that the plan be
established by a church or a convention or
association of churches. In other words, if a
church does not establish the plan, the inquiry
ends there. If, on the other hand, a church
establishes the plan, the remaining sections of
the church plan definition are triggered.
14
Kaplan v. Saint Peter’s Healthcare Sys., No. 13-2941, 2014
WL 1284854, at *5 (D.N.J. Mar. 31, 2014) (emphases in
original).
St. Peter’s responds by arguing that the language of
§ 3(33)(C)(i), which says that a plan “established and
maintained” by a church “includes” a plan “maintained” by a
qualifying church agency, means that any plan maintained,
even if not established, by such an agency is exempt. This
would be persuasive if there were only one requirement—
maintenance—for an exemption. But here we have two
requirements—establishment and maintenance—and only the
latter is expanded by the use of “includes.”
Indeed, St. Peter’s essentially conceded the problem
with its reading at oral argument when presented with the
following scenario: Congress passes a law that any person
who is disabled and a veteran is entitled to free insurance. In
the ensuing years, there is a question about whether people
who served in the National Guard are veterans for purposes of
the statute. To clarify, Congress passes an amendment saying
that, for purposes of the provision, “a person who is disabled
and a veteran includes a person who served in the National
Guard.” Asked if a person who served in the National Guard
but is not disabled qualifies to collect free insurance, St.
Peter’s responded that such a person does not because only
the second of the two conditions was satisfied. This correct
response only serves to highlight the fatal flaw in the
construction of ERISA advanced by St. Peter’s.
V. Canons of Construction
Various canons of statutory construction add to the
problems with the reading proposed by St. Peter’s. First, if St.
Peter’s were right, the church establishment requirement in
§ 3(33)(A) would be superfluous. That is because any plan,
15
regardless of who established it, would be eligible for an
exemption as long as it is maintained by an entity that meets
the requirements of § 3(33)(C)(i). Creating such superfluous
language is a result we attempt to avoid when construing a
statute. See Bennett v. Spear, 520 U.S. 154, 173 (1997)
(noting that it is a “cardinal principle of statutory
construction” to “give effect, if possible, to every clause and
word of a statute”) (internal quotation marks omitted). This is
particularly so where a contrary reading would “nullif[y]” a
statute’s “careful limitation.” Id. Here, Congress carefully
limited the church plan exemption to only those plans
established by a church. In interpreting the statute, we must
give meaning to this limitation.
Second, in cases where Congress “includes particular
language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that
Congress acts intentionally and purposely in the disparate
inclusion or exclusion.” Russello v. United States, 464 U.S.
16, 23 (1983) (internal quotation marks omitted). This canon
is known as expressio unius est exclusio alterius (to express
one is to exclude others). Here, Congress could have said that
a plan “established and maintained” by a church includes a
plan “established and maintained” by a church agency. But
the final legislation did not say that. Tellingly, however, draft
legislation introduced in 1978 by Representative Barber B.
Conable, Jr. to amend the Internal Revenue Code had
precisely that language. See Kaplan, 2014 WL 1284854, at *9
n.4 (quoting 124 Cong. Rec. 12108 (May 2, 1978)). If
Representative Conable’s text had been adopted, it would be
quite clear that church establishment of a plan would no
longer be a prerequisite for the exemption. But by the time
Congress passed the 1980 ERISA amendments, the second
16
“established” was gone.7 This deletion from one version to
another “is fairly seen . . . as a deliberate elimination of any
possibility” of construing the statute to have the meaning it
would have had in the rejected version. Doe v. Chao, 540
U.S. 614, 623 (2004).
Third, we have noted that ERISA is a “remedial”
statute that should be “liberally construed in favor of
protecting the participants in employee benefit plans.” IUE
AFL-CIO Pension Fund v. Barker & Williamson, Inc., 788
F.2d 118, 127 (3d Cir. 1986). As certain of the amici explain,
exempt church plans lack many of the protections associated
with ERISA. Features that ERISA plans have that church
plans need not follow include fiduciary duties and minimum-
funding protections. See, e.g., Nat’l Emp’t Lawyers Assoc. &
AARP Found. Amicus Br. at 11–19. Excluding plans
established by church agencies could take a large number of
employees outside the scope of these ERISA protections. For
instance, as of 2012 religiously affiliated hospitals accounted
for seven of the country’s ten largest non-profit healthcare
systems. ACLU & Americans United for Separation of
Church and State Amicus Br. at 22. As the District Court
noted, construing plans established by church hospitals to be
exempt “would achieve quite the opposite” result of the canon
directing us to construe exemptions narrowly. Kaplan, 2014
WL 1284854, at *6.
7
Viewed in light of the purpose of the provision, the use of
the current language rather than Rep. Conable’s version
makes sense. As discussed in Part VI below, the purpose of
§ 3(33)(C)(i) was not to deal with a plan established and
maintained by a church agency but rather to account for a
plan established by a church and maintained by its pension
board (i.e., a church agency).
17
St. Peter’s, for its part, contends that a fourth canon,
construing provisions in light of their statutory neighbors,
favors its reading. Specifically, it points to ERISA’s
governmental plan exemption. ERISA § 3(32), 29 U.S.C
§ 1002(32), defines an exempt governmental plan to mean “a
plan established or maintained for its employees by the
Government of the United States, by the government of any
State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing.” The provision goes
on to say that an exempt governmental plan “includes,”
among other options, certain plans to which the Railroad
Retirement Act of 1935 applies and certain plans “established
and maintained” by Native American tribal governments. St.
Peter’s uses this as an example of an instance in which the
initial definition of an exempt plan is enlarged through the
use of “includes.”
But the governmental plan provision hurts, not helps,
St. Peter’s. It shows that Congress considers “established”
and “maintained” to be different terms, as either is sufficient
for the plans of the federal government and state
governments, but both are required for Native American tribal
plans. For the church plan exemption before us, Congress did
not, as it did with plans of the federal government and state
governments, say that either establishment or maintenance is
sufficient for ERISA exemption. Rather, Congress explicitly
required both (subject to the caveat that the second
requirement could be met in the case of a plan maintained by
a qualifying church agency).
* * *
18
In this context, even if St. Peter’s may maintain an
exempt church plan,8 it cannot establish one. The plain terms
of ERISA only make these exemptions available to plans
established in the first instance by churches. Because St.
Peter’s is not a church, the exemption is unavailable, and it is
not entitled to dismissal of Kaplan’s complaint on that basis.
8
Although we need not decide the issue, we have substantial
reservations over whether St. Peter’s can even maintain an
exempt plan. Subsection 3(33)(C)(i) requires that if a plan is
to be maintained by an organization that is not a church, it
must be an organization “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 . . . .” In addition, the same subsection
requires that the organization be “controlled by or associated
with a church or a convention or association of churches.”
Setting aside whether St. Peter’s is controlled by or associated
with a church (as that depends on disputed facts not properly
resolvable at the motion-to-dismiss stage), St. Peter’s itself
does not appear to meet the principal purpose test, as its
principal purpose is the provision of healthcare and not the
administration or funding of the retirement plan. St. Peter’s
contends, however, that its Retirement Plan Committee
qualifies because the Committee’s principal purpose is to
maintain the plan. However, this may be insufficient. See
Rollins, 19 F. Supp. 3d at 914 (“[T]he statute does not say
that the organization may have a subcommittee who deals
with plan administration. Rather, the statute dictates that [the]
organization itself must have benefits plan administration as
its ‘principal purpose,’ which Dignity plainly does not.”).
19
VI. Legislative History
Because the terms of the statute are unambiguous, we
need go no further. However, because the parties have
devoted considerable resources to briefing and arguing the
legislative history of the church plan exemption, we turn to it
now. Even if the statute were ambiguous and the legislative
history bore on our analysis, the result would be the same.
Indeed, the legislative history of § 3(33) reinforces our
conclusion that the exemption is only available to plans
established by churches. Specifically, that history
demonstrates that the purposes of the 1980 amendments were
to account for plans established by churches but maintained
by church agencies (hence the adoption of § 3(33)(C)(i)) and
to extend the sunset provision set to take effect at the end of
1982 (thus the adoption of § 3(33)(C)(ii)).
St. Peter’s places great emphasis on the following floor
statement from Senator Herman Talmadge, a co-sponsor of
the 1980 church plan amendments, regarding the purpose of
the 1980 language:
Church agencies are essential to the
churches’ mission. They are for the sick and
needy and disseminate religious instruction.
They are, in fact, part of the churches. As a
practical matter, it is doubtful that the agency
plans would survive subjection to ERISA.
There is an essential difference between the
plans of business[es] and the plans of church
institutions. If a business incurs increased plan
maintenance costs, it merely passes these on to
the consumer. The incomes of most church
agencies, on the other hand, are dependent
solely upon tithes and other offerings. There is
virtually no way for them to compensate for the
20
additional costs of complying with ERISA. The
churches fear that many of the agencies would
abandon their plans. We are concerned today
that the requirements of ERISA [have] made the
maintenance of plans too expensive and
demanding even for businesses which have the
capacity to absorb additional costs. The impact
of ERISA on church agencies would be many
times as serious as that on businesses.
JA 122.9
St. Peter’s contends that this statement makes clear
that Congress was focused on plans established by church
agencies. Not so. Rather, the context demonstrates that
Senator Talmadge’s real concern was the sunset provision set
to take effect at the end of 1982. As discussed, the initial
definition of a church plan was one “established and
maintained for its employees by a church.” Existing plans
established and maintained by churches were allowed to
cover employees of church agencies, but only until the end of
1982. This was not a question of who established and
maintained the plans, as only churches could. Instead, the
issue was that no exempt plans would be allowed to cover
agency employees after 1982 (unless the agency itself
qualified as a church). Indeed, Senator Talmadge made the
comments above in the context of explaining why churches,
after 1982, would need to “divide their plans into two so that
one will cover church employees and the other . . . agency
employees.” Id. Absent an amendment, the plans in the latter
category would not qualify for the exemption. That was the
real threat to plans covering agency employees.
9
“JA” refers to the parties’ joint appendix.
21
The reliance of St. Peter’s on statements by Deputy
Assistant Secretary of the Treasury Daniel Halperin during a
hearing on the proposed legislation is similarly misplaced. St.
Peter’s highlights his statement that Treasury’s “most serious
concern” was that the amendments “would exclude church
agencies from the protection of ERISA, and that would mean
that if somebody works for a hospital or a school that happens
to be affiliated with a church it would be permissible for that
plan to provide no retirement benefits unless they work until
age 65, for example.” Appellants’ Addendum at 8. This does
not help St. Peter’s. Assistant Secretary Halperin was merely
pointing out that, if the sunset provision took effect,
employees of church agencies could not be included within
the then-existing exemption, and a plan covering them would
instead be subject to ERISA even if a church itself established
it. However, nothing in the statement connotes that plans
established by church agencies would be eligible for the
exemption.
Similarly, St. Peter’s does not benefit from the
statement of Senator Jacob Javits, the general sponsor of the
legislation in which the 1980 amendments were included.
Senator Javits said that he was “not too happy” that the
amendments would exempt “those who work for schools and
similar institutions which are church-related.” JA 1524.
Again, this relates to Congress’ decision not to allow the
sunset provision to take effect.
More to the point, the legislative history demonstrates
that the purpose of § 3(33)(C)(i), the statutory provision on
which St. Peter’s most heavily relies, was to bring explicitly
within the exemption plans established by churches but
maintained by church agencies known as pension boards.
Senator Talmadge explained that “the church plan definition
is so narrowly drawn that it does not in many ways even
approximate the way church plans are organized or operated.”
22
JA 122. He mentioned congregational, as opposed to
hierarchical, denominations, noting: “Most church plans of
congregational denominations are administered by a pension
board. This is usually an organization separately incorporated
from, but controlled by, the denomination.” Id. There was
some confusion as to whether such a structure qualified for an
exemption. Id. As Senator Talmadge explained to the Senate
Committee on Finance, the amendments dealt with that issue
by expanding the definition to include “church plans which
rather than being maintained directly by a church are instead
maintained by a pension board maintained by a church.”
Senate Committee on Finance, Executive Session Minutes,
June 12, 1980, at 40.
St. Peter’s, despite a lengthy discussion of legislative
history, has not pointed to a single statement showing that
Congress, in addition to being concerned about the sunset
provision and plans maintained by pension boards (i.e.,
church agencies), was also focused on plans established by
those agencies. Rather, that history overwhelmingly supports
the conclusion that Congress did not intend to open up the
exemption that broadly.
VII. IRS Rulings
St. Peter’s also seeks to imbue with considerable
weight the interpretation that the IRS has given to the church
plan definition. As discussed, the Internal Revenue Code gets
its definition of church plans from ERISA. Construing the
initial 1974 definition, the IRS took the position that
healthcare companies with religious missions were not
eligible for the church plan exemption because they were not
performing sufficiently religious functions. I.R.S. Gen.
Couns. Mem. 37,266 (Sept. 22, 1977). Essentially, the IRS’
position was that only church agencies that themselves could
qualify as churches could establish exempt plans.
23
But the IRS changed course in 1983 based on its
interpretation of the 1980 amendments and began issuing
exemptions to plans that were not established by churches. A
1983 IRS memorandum stated that because “religious orders
can now have their employees covered by a church plan
without a determination that such orders are churches, [an
order’s] nonchurch status is not fatal.” I.R.S. Gen. Couns.
Mem. 39,007 (July 1, 1983). According to St. Peter’s, the IRS
has issued at least several hundred exemptions based on that
reasoning. And, as discussed, St. Peter’s itself received an
exemption from the IRS in 2013, after this lawsuit was filed.
St. Peter’s also notes that the Department of Labor has issued
several exemptions of its own based on the IRS’ position.
However, because the IRS’ position came in a general
counsel memorandum and not as a result of “formal
adjudication or notice-and-comment rulemaking,” its
interpretation is owed deference “only to the extent that [it
has] the power to persuade.” Christensen v. Harris Cnty., 529
U.S. 576, 587 (2000) (internal quotation marks omitted). The
IRS’ 1983 memorandum lacks the power to persuade because
it does not even consider the church establishment
requirement of § 3(33)(A). Rather, it skips directly (and
inexplicably) to § 3(33)(C). Because the IRS’ position is at
odds with the statutory text, we owe it no deference.
VIII. Congressional Ratification
St. Peter’s also advances a congressional ratification
argument. Specifically, it notes that, following the IRS’ 1983
memorandum, Congress has incorporated the church plan
definition from the 1980 amendments into a variety of other
laws. See, e.g., 26 U.S.C. § 4980D(b)(3)(C) (excluding
church plans from certain minimum excise taxes imposed on
health plans); 15 U.S.C. § 80a-3(c)(14) (excluding church
plans from the definition of investment companies under the
24
Investment Company Act of 1940). From this, St. Peter’s
contends that Congress legislated against the backdrop of the
1983 IRS memorandum and should be presumed to have
approved that interpretation when reusing the definition.
It is true as a general matter that when it “adopts a new
law incorporating sections of a prior law, Congress normally
can be presumed to have had knowledge of the interpretation
given to the incorporated law, at least insofar as it affects the
new statute.” Lorillard v. Pons, 434 U.S. 575, 581 (1978).
However, in Lorillard “Congress exhibited . . . a detailed
knowledge of the [statutory] provisions and their . . .
interpretation.” Id. St. Peter’s has not shown any evidence
that Congress had such a detailed knowledge in this case.
Moreover, ratification does not apply where, as is the case
here, the statute has a plain meaning that is inconsistent with
the proposed interpretation. Dutton v. Wolpoff & Abramson, 5
F.3d 649, 655 (3d Cir. 1993). As a result, ratification cannot
salvage things for St. Peter’s.
IX. Free Exercise Clause
Finally, St. Peter’s raises an argument under the First
Amendment’s Free Exercise Clause. It asserts that failing to
adopt its position would create constitutional “[i]ssues.”
Appellants’ Br. at 47. It is not clear whether St. Peter’s is
invoking the doctrine of constitutional avoidance or is instead
raising a full-blown constitutional challenge. In any event, the
argument fails. St. Peter’s bases its constitutional concerns on
the premise that, if church agencies cannot establish their own
plans, the IRS will be forced, in considering requests for
exemptions, to determine on an individualized basis whether
particular agencies are performing sufficiently religious
functions such that they can themselves qualify as churches.
This is the approach the IRS took to agency-established plans
prior to the 1983 memorandum. The argument misses the
25
point. Churches and agencies can avoid this inquiry altogether
by having a church establish the plan in the first instance.
Plans established by churches are explicitly permitted under
§ 3(33)(C)(ii) to cover agency employees.
St. Peter’s has not offered any reason why the First
Amendment entitles it to a retirement plan structured using a
particular corporate form. The ability of church agencies to
have their employees covered by exempt plans is by no
means eliminated by our reading. We have merely determined
that Congress has required that such coverage come in the
form of plans established by churches. Even assuming that St.
Peter’s has a constitutional right to have its employees
covered by an exempt plan, this arrangement does not unduly
interfere with that.
Moreover, to the extent that St. Peter’s also suggests
that Congress cannot validly distinguish between churches
and church agencies, that argument is unpersuasive. Indeed,
Congress regularly applies provisions to churches without
reference to church agencies. See, e.g., 26 U.S.C.
§ 514(b)(3)(E) (creating a special rule for churches with
respect to real property acquired for tax-exempt use); 26
U.S.C. § 170(b)(1)(A)(i) (allowing deductions for charitable
contributions to churches). See also Priests for Life v. U.S.
Dep’t of Health & Human Servs., 772 F.3d 229, 272 (D.C.
Cir. 2014), cert. granted, 84 U.S.L.W. 3257 (U.S. Nov. 6, 2015)
(No. 14-1453) (describing the distinction between “churches . .
. and nonprofit organizations that may have a religious
character or affiliation, such as universities and hospitals” as
“long-recognized” and “permissible”); Found. of Human
Understanding v. United States, 614 F.3d 1383, 1389 (Fed.
Cir. 2010) (noting, in context of 26 U.S.C. § 170(b)(1)(A)(i),
the “generally accepted principle” that Congress intended to
distinguish between churches and other religious
organizations).
26
* * * * *
In interpreting a statute, we presume that Congress
means what it says. Ever since it enacted ERISA in 1974,
establishment of a pension plan by a church has been a
prerequisite to triggering the exemption from ERISA.
Nothing in the 1980 amendments changed that. St. Peter’s
sought dismissal of the putative class action on the ground
that its plan qualifies for the church plan exemption.
However, that exemption is unavailable here, as the plan was
not established by a church. We therefore affirm the District
Court’s denial of the motion to dismiss.
27