Court Finds Advocate Health Retirement Plan Not a Church Plan

A federal district court has found the defined benefit (DB) retirement plan of Advocate Health Care Network and its subsidiaries is not a “church plan” under the Employee Retirement Income Security Act (ERISA).

United States District Judge Edmond E. Chang of the U.S. District Court for the Northern District of Illinois concluded a statutory analysis reveals that the Advocate plan does not qualify as a church plan and is instead fully subject to ERISA’s requirements. Chang denied Advocate’s motion to dismiss the case.

According to the court opinion, although it is affiliated with the United Church of Christ and the Evangelical Lutheran Church in America, Advocate is not owned or financially supported by either church. The plaintiffs allege that by unlawfully operating the plan outside the scope of ERISA, Advocate breached its fiduciary duties and harmed the plan’s participants by requiring an improperly long period of five years of service to become fully vested in accrued benefits; failing to file reports and notices related to benefits and funding; funding the plan at insufficient levels; neglecting to provide written procedures in connection with the plan; placing the plan’s assets in a trust that do not meet statutory requirements; and failing to clarify participants’ rights to future benefits.

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Alternatively, even if Advocate can evade liability on these counts under ERISA’s church plan exemption, the plaintiffs allege that this provision of ERISA is void as an unconstitutional violation of the First Amendment’s prohibition on state establishment of religion.

Chang found that ERISA Section 33(A) defines a church plan as a “plan established and maintained” by a church, and Section 33(C)(i)’s provision that a church plan includes a plan maintained by an organization established for the purpose of administering the plan does not override the fact that the plan must be established by a church. He quoted the case of Rollins v. Dignity Health in which a federal court in California made a similar finding and said if “all that is required for a plan to qualify as a church plan is that it meet section [33(C)’s] requirement that it be maintained by a church-associated organization, then there would be no purpose for section A.”

Chang contended that contrary findings by other courts incorrectly look at Section 33(C) in isolation. He said neither Medina v. Catholic Health Initiatives or Overall v. Ascension Health Alliance explain why “established and maintained” should be read as a singular term when those two words have separate, ordinary meanings. 

Looking at the legislative history of ERISA Section 33(C), Chang said the takeaway is that it was added to ERISA in response to very specific concerns about existing church plans and the fact that pension boards were set up to maintain their pension plans. 

Chang also concluded the Internal Revenue Service (IRS) opinion given to Advocate saying its plan is not entitled to deference and its contents do not change the outcome of the court’s decision. He cited other court cases which established that agency opinions expressed in letters are not owed the type of deference that is owed when an administrative agency interprets a statute through formal adjudication or rulemaking with a notice-and-comment process. “[T]he IRS letter, which reflects merely an advisory opinion and not the product of formal adjudication or rulemaking, should be deferred to only if its interpretation of the statute is convincing,” Chang wrote. He found that because the IRS opinion relied on the same reasoning used by the court decisions he rejected, it is not persuasive and is owed no deference. 

Because he found the Advocate plan is not a church plan, Chang said, “the constitutional question raised here, whether Congress may permissibly create within ERISA a religious-based exemption for certain employers, must await another day for resolution…” 

The opinion in Stapleton v. Advocate Health Care Network and Subsidiaries is here.

Investor Sentiment Shows 4Q Rise

After remaining level for the previous year, investors expressed rosier outlooks in the fourth quarter, according to a survey by John Hancock Financial.

The John Hancock Investor Sentiment Index, a quarterly measure of investors’ views on a range of investment choices, life goals, and economic outlook, reflects the percentage of investors who say they believe it is a “good” or “very good” time to invest, versus those who feel the opposite. Investors’ positive feelings about stocks helped drive the year-end index score to +26, matching its previous record high in the second quarter of 2013.

Six in ten investors said they are confident about investing in stocks, while a similar share expressed optimism about investing in balanced mutual funds. Nearly 30% believe that blue chip stocks will be the market’s top performers over the next six months, a jump in expectation from the third quarter, when 22% thought this would be the case. Technology, health care and energy companies offer the best investment opportunities in the next six months, investors say.

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Saving for retirement remains a key priority. Eight in ten said that now is a good time to put money away in 401(k) plans or individual retirement accounts (IRAs). About two in five are positive about investing in target-risk funds and target-date funds. Half of investors have positive views of contributing to 529 college savings plans.

It’s not just investing that invokes positive outlooks from investors, according to Megan Greene, chief economist at John Hancock Asset Management. About a third of those surveyed said they feel it is a good time to start a business, compared with 21% in the first quarter. About a third (31%) said it is a good time to change jobs, a significant uptick from the 19% who expressed this in the first quarter.

Investor respondents were optimistic about their own personal financial situations as well, Greene said. “Half say they are better off than they were two years ago, and half believe their situation will improve over the next two years,” she said.

A quarter of investors cite their savings and investment portfolios as the main reason they believe their financial situation will be better in the future. Eighteen percent chalked their optimism up to having paid down debt. Of the 8% of investors who predict their financial situation will be worse in two years, one-third cited government and politics as the culprit.

It’s not all clear skies ahead, though, investors say. The cost of health care is of major concern to 54% of those surveyed. Four in ten are very concerned about market consequences of unrest in the Middle East, a share that has increased significantly from last year (from 29% in the same period of 2013). Worry over oil and gasoline prices plunged, with only one in six expressing great concern, compared with 26% in the previous quarter and 33% in the second quarter of 2014.

John Hancock’s Investor Sentiment Survey is a quarterly poll of affluent investors. The survey measures investors’ feelings about the current economic climate and their evaluations of what represents a good or bad investment, given the current environment. The poll also asks consumers about their confidence in reaching key financial goals and their attitudes toward specific financial products and services.

The online survey was conducted by independent research firm Greenwald & Associates. A total of 1,139 investors were surveyed between November 10 and November 21.  To qualify, respondents were required to participate at least to some extent in their household's financial decision-making process, have a household income of at least $75,000, and assets of $100,000 or more. 

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