On June 5, 2017, the U.S. Supreme Court decided Advocate Health Care Network v. Stapleton, No. 16-74, resolving the question of whether church-affiliated hospitals’ employee defined-benefit pension plans qualify for the ERISA church plan exemption, despite those plans not having been originally “established” by a church. Under ERISA, the Employee Retirement Income Security Act of 1974, most private employers and employee benefit plans must adhere to specific requirements to ensure plan solvency. These requirements increase costs for employers who do not qualify for any exemption from the ERISA statute.
In 2014, employees and former employees of Advocate Health Care Network as well as employees of other large health systems filed class actions under ERISA, claiming that the health systems were not entitled to take advantage of the church plan exemption because they had not been originally established by a church and accusing the health systems of underfunding their pension plans. The lower courts initially ruled in favor of the employees, rejecting the hospitals’ argument that they had relied upon opinions from the IRS allowing them to take the church plan exemption, and holding that the ERISA church plan exemption would only apply to employee benefit plans that had been established directly by a church. The IRS and the Department of Labor had always considered such organizations exempt from ERISA for many years, when the Supreme Court accepted the case to resolve differing lower court interpretations of the ERISA church plan exemption language.
The U.S. Supreme Court reversed the decisions of the lower courts, agreeing with Advocate (and the other two hospital systems involved in the litigation) regarding their interpretation of the ERISA statutory language. As long as the organization is controlled by or associated with a church, the Court held, it would be exempt from ERISA requirements. However, the decision avoided the issue of whether large non-profit hospital systems meet the requirement for the exemption in terms of whether they are sufficiently controlled by or associated with a church. This may signal an avenue for further legal challenges to the church plan exemption for employee beneficiaries of ERISA-exemption benefits plans.
While the Court held in favor of the hospital employers in this case, it is important for employers currently relying upon the exemption to perform an audit and analysis of each business entity claiming the exemption. Employers should examine their current agreements and policies based upon a church affiliation. These affiliations may involve church control, church association by agreement, or be based upon the function of the organization, having the principal purpose of administering or funding a plan or program of employee benefits for employees of a church or convention or association of churches. If you have questions about the church plan exemption or other ERISA-related inquiries, please contact one of our employment attorneys at 937-223-1130 or at email@example.com or firstname.lastname@example.org.