CLIENT UPDATE

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June 5, 2017

Supreme Court Rules In Favor Of Church-Affiliated Entities In Erisa Case

The United States Supreme Court unanimously ruled that the term “church plan” in the Employee Retirement Income Security Act (“ERISA”) includes a plan maintained by a church associated organization whose chief purpose is to fund or administer a benefits plan for employees of the church or church-affiliated nonprofit institutions.    Advocate Health Care et al. v. Stapleton, et al., Docket No. 16-74 (June 5, 2017).  As a result, all such plans including those of church related hospitals and healthcare institutions, whether established by a church or not, are exempt from the reporting and funding obligations of ERISA.  The ruling is welcome news to church-related entities with pension plans who have faced massive litigation on the issue.  This ruling will bring that litigation to an end.

ERISA is comprehensive federal legislation governing the administration and funding requirements of pension plans.  In 1980, Congress amended the definition of church plan in ERISA such that a church plan was defined as a plan established and maintained by a church.  (emphasis added.)  In the ensuing decades, federal agencies including the IRS, the PBGC and the DOL all interpreted the statute to include plans that were maintained by church-affiliated organizations even if the plans had not been established by a church.  In recent years, however federal courts including three appellate courts rejected this expansive definition of the term “church plan” in favor of a definition that limited the church plan exemption only to plans established and maintained by churches.  The Supreme Court’s decision expressly reverses these rulings.

The cases before the Court involved three church-affiliated nonprofit institutions that ran hospitals.  Each of the hospitals offered their employees defined-benefit pension plans but the plans had not been established by churches.  Instead, the plans has been established by the hospitals themselves.  The hospitals were sued for failing to satisfy the reporting and funding obligations of ERISA.  The hospitals defended the claims, asserting that despite the fact that their plans had not been established by a church, they were entitled to the church plan exemption.     The federal courts, including the Courts of Appeal for the Third, Sixth and Ninth Circuit rejected the hospitals’ interpretation of ERISA.  The hospitals petitioned for Supreme Court review, which was granted in 2016.  The Supreme Court sided with the hospitals and other church-affiliated entities.  The Supreme Court’s analysis was textual and logical:

Premise 1:  A plan established and maintained by a church is an exempt church plan.

Premise 2:  A plan established and maintained by a church includes a plan maintained by a principal purpose organization.

Deduction:  A plan maintained by a principal-purpose organization is an exempt church plan.

Slip Opinion at p. 7.

The Court’s ruling is welcome news to church-affiliated entities with pension plans.  If you should have any questions concerning the decision or its impact on your plan, please do not hesitate to contact us.