By: Kimberly J. Ruppel
Member, Troy Office
Health Care Network et al v. Stapleton et al, 581 U.S. __ (2017)
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 Courts 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
It is important to note that hospital plans may still be
subject to attack 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.