SCOTUS Determines ERISA’s “Church Plan” Exemption Applies Broadly to Church Affiliates, Leaving Thousands of Employees Without ERISA’s Protections

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Springer Ayeni, a law firm specializing in ERISA law, provides expert analysis of the US Supreme Court ruling Advocate Health Care Network, a decision that eliminates ERISA protections for hundreds of thousands of medical workers if their employers are even remotely affiliated with a religious organization.

Springer Ayeni, A Professional Law Corporation, with offices in Oakland and San Jose, CA

Most notably impacted are hundreds of thousands of employees of hospitals affiliated with religious organizations, whose benefits will no longer be protected by ERISA’s funding requirements, fiduciary duty rules, and anti-pension cut-back provision

By Claire Kennedy-Wilkins, of Counsel at Springer Ayeni, A Professional Law Corporation; http://www.benefitslaw.com

The Supreme Court held on Monday that employee benefit plans maintained by the internal benefit committees of church-affiliated non-profits, such as hospitals, do not need to be established by a church in order to fall within the Employee Retirement Income Security Act’s (“ERISA”) “church plan” exemption. Advocate Health Care Network v. Stapleton, No. 16-258 ___ S.Ct. ___, 2017 WL 2407476 (2017). Most notably impacted are hundreds of thousands of employees of hospitals affiliated with religious organizations, whose benefits will no longer be protected by ERISA’s funding requirements, fiduciary duty rules, and anti-pension cut-back provisions, among others.

The Court focused on ERISA’s legislative history: Plans “established and maintained . . . by a church” have always been exempt from regulation under ERISA under the so-called “church plan” exemption. 29 U.S.C. §1002(33)(A). In addition, four years after ERISA’s enactment, Congress expanded the “church plan” exemption, stating:

A plan established and maintained for its employees . . . by a church . . . includes a plan maintained by an organization . . . the principal purpose . . . of which is the administration or 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). Federal agencies have long interpreted the amendment to mean that plans that are established and maintained by “principal purpose” organizations, such as internal benefits committees of church-affiliated hospitals, are except from ERISA. However, employees of three church-affiliated non-profit health care facilities filed separate lawsuits challenging this interpretation. The employees argued instead that ERISA’s plain language requires such plans to be establish by a church itself in order to fall within §1002(33)(C)(i). In each case, the district court agreed with the employees. The Third, Seventh, and Ninth Circuits all affirmed.

In an opinion written by Justice Elena Kagan, with Justice Neil Gorsuch not participating and Justice Sonia Sotomayor concurring, the Supreme Court reversed. The Court engaged in a protracted discussion of grammar and statutory construction, even noting that it would not “go down the rabbit hole of further expounding” on its hypothetical statute utilized in making its grammatical analysis. 2017 WL 2407476, at *6. Yet it ultimately concluded that Congress’s use of the phrase “includes” in its 1980 amendment indicates the intent to create an additional category receiving the same treatment as the preceding category, i.e. an additional exemption. The Court also found that the interpretation urged by the respondents would require it to ignore the words “established and” in §1002(33)(C)(i), thus running afoul of additional principles of statutory construction.

Following the Court’s decision, even where non-profit hospitals and other health care organizations are only loosely associated with a church, and the church has not been involved in establishing or maintaining the non-profit’s employee benefit plans, the plans offered to employees will not be subject to regulation under ERISA. For example, as the Court noted in a footnote, one of the petitioners was a large network of community hospitals with its only church connection amounting to the fact that the organization “maintains ties to the Catholic religious orders that initially sponsored some of its facilities.” 2017 WL 2407476, at *2. According to a 2016 report entitled “Growth of Catholic Hospitals and Health Systems,” 1 in 6 acute care hospitals are owned or affiliated with the Catholic Church. The Seventh-day Adventist Church health care system in the United States employs nearly 120,000 medical professionals in more than 85 hospitals.

Justice Sotomayor began her concurrence by reiterating ERISA’s protection of “ensuring ‘that if a worker has been promised a defined pension benefit upon retirement—and if he has fulfilled whatever conditions are required to obtain a vested benefit—he will actually receive it,’” 2017 WL 2407476, at *11, quoting Lockheed Corp. v. Spink, 517 U.S. 882, 887, 116 S.Ct. 1783, 135 L.Ed.2d 153 (1996). She expressed concern that affected non-profits include large organizations that very closely resemble secular businesses, with thousands of employees, for-profit subsidiaries, and billions of dollars in annual revenue. Despite such similarities, employees of church-affiliated non-profits will not be afforded ERISA’s protections and the body of unregulated “church plans” will expand.

The hospitals were represented by Arnold & Porter Kaye Scholer LLP, Greensfelder, Hemker & Gale, P.C., Manatt, Phelps & Phillips, LLP, and Sills Cummis & Gross P.C.

The employees were represented by Keller Rohrback LLP, Cohen Milstein Sellers & Toll PLLC, and James A. Feldman.

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