Case Sheds Light on Church Plan Exception

November 12, 2007

Most benefits and insurance professionals familiar with COBRA administration clearly know that church plans are exempted from COBRA’s requirements. What is less clear is when this exception actually applies. A recent district court case shed some light.

In Polk v. Dubuis Health System (Dubuis), the Western District Court of Louisiana reviewed what level of religious involvement is required to transform an employer's plan into a church plan. The employer, Dubuis, was a hospital with religious affiliations. When Dubuis terminated the employment of Celestine Polk, a nurse's assistant, the hospital did not offer COBRA because it thought it was exempt from COBRA.

The court disagreed. Under ERISA, the plan sponsor must either be a church (or an association or convention of churches) or share common religious bonds or convictions with a church, an association or convention. The first part did not apply. The employer failed the second part, based on three factors:

• Whether a religious institution has an official role in corporate governance
• Whether the organization receives assistance from a religious institution
• Whether a denominational requirement exists for any employee or customer

Factors in favor of a church plan ruling included the fact that Dubuis is a non-profit organization whose sole corporate member is Christus, another non-profit organization operated by the Congregations of the Sisters of Charity of the Incarnate Word. Three Dubuis board members were members of a religious order.

However, only five of the 10 board members were elected by Christus. No religious order had an official role in governance, and there was no denominational requirement for employment. Therefore, the court held that Dubuis did not operate a church plan and was required to offer COBRA.

Hospitals and other health care organizations with religious affiliations typically assume their plans are exempt from ERISA and COBRA. The correct approach is to seek a private letter ruling from the IRS and an advisory opinion from the DOL to confirm their plans' status as a "church plan." Courts usually give deference to these determinations.