Supreme Court Rules on ERISA Church-Plan Exemption

On June 5, 2017, the U.S. Supreme Court ruled that pension plans maintained by several church-affiliated nonprofit hospitals were exempt from federal benefit laws as “church plans.” The unanimous ruling reverses several lower courts by concluding that plans can be church plans even if not originally established by a church.

Background

Employee benefits plans, including retirement and savings plans and health and welfare plans, generally are covered by the Employee Retirement Income Security Act (ERISA). For the protection of plan participants, ERISA imposes reporting and disclosure requirements on plans and sets standards for fiduciaries. Additional requirements apply to pension plans, 401(k) plans, and other funded plans to help protect employees and retirees from plans becoming insolvent.

Not all plans are covered by ERISA, however. Plans sponsored by governmental employers, such as cities, municipalities and public school districts, are exempt. Church plans also are exempt, unless the plan chooses to opt into ERISA.

What is a church plan? ERISA, enacted in 1974, originally defined a church plan as a plan “established and maintained … for its employees … by a church … .” In 1980, Congress amended ERISA stating that a “plan established and maintained … by a church … includes a plan maintained by an organization … controlled by or associated with a church.”

In recent years, employees of several church-affiliated healthcare entities have challenged whether their pension plans violated ERISA by incorrectly claiming to be church plans. A particular concern is that non-ERISA pension plans may be at greater risk of insolvency since they are exempt from ERISA’s minimum funding requirements. Several cases have been settled in the employees’ favor resulting in the employers having to take steps to begin to comply with ERISA’s funding requirements. Meanwhile, employer sponsors and employee advocates have anxiously awaited the Supreme Court’s consideration of several similar cases that were consolidated for review.

Advocate Health Care Network v. Stapleton

In Advocate Health Care Network v. Stapleton, the issue before the Supreme Court was whether ERISA’s church-plan exemption applied to plans maintained by church-affiliated nonprofit entities without regard to whether the plans had been established by a church. The parties agreed that the pension plans in this case had been established by the church-affiliated nonprofit hospitals and not by churches.

In ruling in favor of the employer plan sponsors, the Court cited the text of ERISA as amended in 1980. Justice Kagan noted that the terms “maintained” and “established” often were used interchangeably in speech. Justice Sotomayor concurred with the ruling, but commented that it was unclear whether Congress would make the same amendment today. She noted that many church-affiliated nonprofit hospitals now operate large for-profit subsidiaries earning billions of revenue while competing in the secular market with companies that have to comply with ERISA. It will be interesting to see if Congress may revisit ERISA’s church-plan exemption sometime in the future.

Key Takeaways

  • The Court’s ruling is welcome news for church-affiliated nonprofit entities, such as hospitals, schools, and universities, looking for clarification that their plans are exempt from ERISA. ERISA’s requirements are complex, particularly for pension plans, and compliance can be expensive.
  • Employees and retirees in some cases continue to be concerned about non-ERISA pension plans since they are not subject to minimum funding requirements.
  • We have not necessarily heard the last on this topic. The Court did not address the meaning of an “organization controlled by or associated with a church … .” How much control by or association with a church (or other religious entity) is required in order for an affiliate to avoid ERISA? That issue may come up in other cases.

Stay tuned as ThinkHR will continue to monitor developments and provide information as it becomes available.


Source: Think HR Blog & Updates