Advocate Health Care Network et al v. Stapleton et al, 581 U.S.__ (2017)

In one of the recent opinions rendered by the United States Supreme Court, it was found that pension plans maintained by religiously affiliated pension plan committees were exempt from certain provisions of the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. (as amended) (“ERISA”).

Why is this of interest? ERISA obligates employers to follow a set of rules designed to ensure plan solvency and protect plan participants. Some of these rules, particularly rules regarding pension plan design and funding, may seem more burdensome to employers than protective of employees. The outcome of this case was a blow to those seeking to hold church affiliated hospitals accountable to the same ERISA requirements as their secular counterparts.

The original ERISA statute provided an exemption for “church plans”, defined as “a plan established and maintained…for its employees…by a church.” 29 U.S.C. § 1002(33)(A). Congress amended the statute in 1980 in part to add a section that formed the basis of the dispute before the Court as follows: “A plan established and maintained…by a church…includes a plan maintained by an organization…the principal purpose…of which is the administration of funding of [such] plan…for the employees of a church…, if such organization is controlled by or associated with a church.” 29 U.S.C. § 1002(33)(C)(i). The Court condensed this description as a plan maintained by a “principal purpose organization”.

For decades, the IRS, Department of Labor and the Pension Benefit Guaranty Corporation, which are the three federal agencies responsible for administering ERISA, have read the two definitional sections together and allowed pension plans of church affiliated hospitals, such as the parties in these three consolidated disputes, to be exempt from ERISA.

Recently, three separate class actions were filed by current and former hospital employees to challenge their employers’ pension plan exempt status. The Court of Appeals for the Third, Seventh and Ninth Circuits agreed with the employees’ argument that a pension plan must be established by a church to be exempt. The High Court granted certiorari in these similar disputes to resolve the question of whether a church affiliated hospital employee benefit plan that was maintained by internal benefit committees but not established by a church satisfied the exemption definition.

In the opinion, Justice Kagan explained that the use of the word “include” in the amended definition indicated that a different type of plan should receive the same exemption benefit as the original definition. Accordingly, since Congress deemed the category of plans “established and maintained by a church” to “include” plans maintained by a principal purpose organization, all such plans are exempt from ERISA’s requirements.

It is important to note that hospital plans may still be subject to attach under state law theories of liability with respect to allegations of underfunding or other irregularities. However, church based hospital plans, maintained by an internal benefit committee but not established by a church such as those in these consolidated disputes remain exempt from ERISA’s funding reporting and design requirements.