High Court Unanimous: Church-Affiliated Plans Exempt from ERISA

By John Iekel • June 05, 2017 • 0 Comments

There’s strength in numbers, and there are no greater numbers than unanimous ones when it comes to the U.S. Supreme Court. And that is how the Court ruled in a decision it handed down June 5 that says that religiously affiliated non-profits’ plans are exempt from ERISA even if they were not originally established by a church.

At issue had been whether ERISA’s church plan exemption applies as long as a pension plan is maintained by an otherwise-qualifying church-affiliated organization, or whether the exemption only applies if a church initially established such a plan. Writing for the majority, Associate Justice Elena Kagan notes, “The question presented here is whether a church must have originally established such a plan for it to so qualify. ERISA, we hold, does not impose that requirement.”

In so ruling, the nation’s highest court overturned decisions, both district and appellate levels, from the Third, Seventh, and Ninth circuits, all of which had embraced the notion that ERISA’s “plain text” required that a plan be established by a church, and only by a church, to qualify for the church-plan exemption.

The plaintiffs in these cases — current and former hospital employees — in an effort to obtain ERISA’s protections for their defined benefit plan benefits — had filed class actions alleging that the hospital plans were not entitled to ERISA’s church-plan exemption because they were not established by a church.

The cases consolidated into this decision were Dignity Health v. Rollins, Advocate Health Care Network v. Stapleton, and Saint Peter's Healthcare System v. Kaplan. On Dec. 2, 2016, the Court granted writs of certiorari on petitions that had been lodged last summer: Advocate Health Care Network, on July 15; Saint Peter's Healthcare System, on July 18; and Dignity Health on Aug. 29.

Kagan notes that “From the beginning, ERISA provided that “[t]he term ‘church plan’ means a plan established and maintained ... for its employees ... by a church or by a convention or association of churches,” adding, “In 1980, Congress amended the statute to expand that definition by deeming additional plans to fall within it. The amendment specified that for purposes of the church-plan definition, an ‘employee of a church’ would include an employee of a church-affiliated organization (like the hospitals here).” She goes on to say that “The three federal agencies [the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation] responsible for administering ERISA have long read those provisions, when taken together, to exempt plans like the hospitals’ from the statute’s mandates.”

“The petitioners identify themselves as three church-affiliated nonprofits that run hospitals and other healthcare facilities, and offer DB pension plans to their employees,” Kagan writes, noting that, “Those plans were established by the hospitals themselves — not by a church — and are managed by internal employee-benefits committees.”

In the opinion, Kagan notes that the courts of appeal all had affirmed district court rulings in the three cases. However, she wrote that these cases were “part of a recent wave of litigation” challenging the approach the IRS, DOL and PBGC had taken to such matters, and that “in light of the importance of the issue, this Court granted certiorari.”

“ERISA provides (1) that a ‘church plan’ means a ‘plan established and maintained ... by a church’ and (2) that a ‘plan established and maintained ... by a church’ is to ‘include a plan maintained by’ a principal-purpose organization,” Kagan notes, adding, “Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it. We accordingly reverse the judgments of the Courts of Appeals.”