The United States Supreme Court has held that pension plans maintained by religiously affiliated hospitals are "church plans" that are exempt from ERISA. Advocate Health Care Network v. Stapleton, ___ U.S. ___ (2017).
Background.
The Employee Retirement Income Security Act of 1974 ("ERISA") requires that employee retirement plans contain certain safeguards, including reporting requirements and the obligation that employers currently fund future benefits in a defined benefit pension plan. ERISA exempts "church plan[s]" from these requirements. As ERISA was originally enacted, the term "church plan" meant "a plan established and maintained"¦ by a church or by a convention or association of churches which is exempt from tax"¦ ." 29 U.S.C. 1002(33)(A). In 1980, Congress amended ERISA to expand the definition of church plan to include: ""¦a plan maintained by an organization"¦ the principal purpose or function of which is the administration or funding of a plan"¦for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches."
For over thirty years, the three federal agencies that administer and enforce ERISA (the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation) have interpreted the church plan exemption to include pension plans maintained by organizations, such as hospitals and hospital systems, that are associated with or controlled by a church, whether or not a church itself established the plan.
The plaintiffs in this case were a group of employees who work for Advocate Health Care Network ("Advocate Health") and are members of Advocate Health's retirement plan. Advocate Health operates twelve hospitals and over 250 other health care centers in Illinois. Advocate Health employs over 30,000 people and generates about $4.6 billion in revenue annually. Advocate was formed in 1995 from the merger of Lutheran General Health Systems and Evangelical Health Systems. While not owned by a church or religious organization, Advocate is affiliated contractually with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ. In its contracts with these two churches, Advocate affirms its "ministry in health care and the covenantal relationship" it shares with the churches. Advocate does not maintain its pension plans in accordance with the requirements of ERISA because it believes it falls under ERISA's church-plan exemption.
Plaintiffs sued Advocate, arguing that the Advocate retirement plan is subject to ERISA, and therefore, by failing to adhere to ERISA's requirements, Advocate had breached its fiduciary duty to the participants. The district court ruled that a plan established by a church-affiliated organization, rather than the church itself, is not a church plan within the meaning of the statutory language. The United States Court of Appeals for the Seventh Circuit affirmed. Stapleton v. Advocate Health Care Network, 817 F.3d 517 (7th Cir. 2016).
The Third and Ninth Circuit Courts of Appeal also considered the question and reached similar conclusions. Saint Peter's Healthcare System, et al., v. Laurence Kaplan, 810 F.3d 175 (3rd Cir. 2015); Dignity Health, et al., v. Starla Rollins, 830 F.3d 900 (9th Cir. 2016). These cases were consolidated with Advocate Health for consideration by the Supreme Court.
The Supreme Court's Ruling.
In an opinion authored by Justice Kagan, the Supreme Court held that ERISA does not require that a church establish a plan in order for the church plan exemption to apply. Thus, a plan maintained by an "organization the principal purpose or function of which is the administration or funding of a plan," and which is "is controlled by or associated with a church or a convention or association of churches" (referred to by the Court as a "principal-purpose organization") can qualify as a church plan regardless of which entity established the plan.
The Court noted that, by amending ERISA in 1980, Congress deemed the category of plans established and maintained by a church for purposes of the exemption to include plans maintained by a principal-purpose organization regardless of whether a church established the plan. The majority decision reasoned that the most natural interpretation of the language added by Congress was to enable a plan maintained by a principal-purpose organization to substitute for a plan both established and maintained by a church. The Court reasoned that, by amending ERISA to include principal-purpose organizations in the definition of church plan, Congress wanted to ensure that churches and church-affiliated organizations received comparable treatment under ERISA.
In a footnote, Justice Kagan noted that the Court was not addressing whether the "principal purpose of the organization" was to maintain a benefit plan. Advocate Health is a health care network, whose principal purpose would appear to be to provide health care services, not to maintain a benefit plan. Advocate Health took the position that its internal pension committee is the "organization" that maintains the plan. The Court accepted Advocate Health's position on that point, noting that the question whether the internal pension committee is the appropriate "organization" was not before the Court. __ U.S. ___, footnote 3.
In a concurring opinion, Justice Sotomayor, who agreed with the majority's statutory interpretation, observed that it was not clear that Congress would take the same action today because, despite their relationship to churches, organizations like Advocate Health "compete in the secular market with companies that must bear the cost of complying with ERISA."