• Supreme Court Rules That Church-Affiliated Hospitals Fall Within ERISA’s Church Plan Exemption
  • June 7, 2017 | Authors: Brendan Ballard; Nicholas T. Christakos; Adam B. Cohen; Eleanor Keith Emanuel; Carol T. McClarnon; Vanessa A. Scott; W. Mark Smith; Phillip E. Stano; Gail L. Westover
  • Law Firms: Eversheds Sutherland (US) LLP - Washington Office; Eversheds Sutherland (US) LLP - Atlanta Office; Eversheds Sutherland (US) LLP - Washington Office
  • On June 5, a unanimous US Supreme Court reversed decisions of the US Courts of Appeal for the Third, Seventh, and Ninth Circuits, holding that a church-affiliated organization that establishes an employee benefits plan falls within the Employee Retirement Income Security Act’s (ERISA) exemption for church plans.

    In Advocate Health Care Network et al. v. Stapleton et al., the plaintiffs were current and former employees of hospitals who filed class actions in three consolidated cases. The defendants were three church-affiliated nonprofit entities that ran the hospitals and that offered their employees defined-benefit pension plans. 

    ERISA exempts “church plan[s]” from its regulation of employee benefits plans, unless the employer makes an election to provide ERISA coverage. While “church plan” was originally defined as a “plan established and maintained . . . by a church,” Congress expanded the definition in 1980 to include “a plan maintained by a [church-affiliated] organization.” 

    There was no dispute that the hospitals were church-affiliated organizations. The plaintiffs argued, however, that while the 1980 statutory amendment allowed such organizations to maintain employee benefits plans, it did not alter the original statutory requirement that the plan be established by a church in order to qualify for the exemption. Three district courts agreed, and the Third, Seventh, and Ninth Circuits all affirmed those decisions.

    Thus, the case posed to the Supreme Court the question of the proper interpretation of the statute, in combination with the 1980 amendment. Justice Elena Kagan’s majority opinion (in which Justice Neil Gorsuch took no part) applied logical syllogisms to determine that the amendment altered both requirements from the original definition. Stated otherwise, a church plan need not be established or maintained by a church, but could be established and maintained by a church-affiliated organization.

    Though the legislative history was not particularly illuminating, the Court agreed with the hospitals that Congress’s purpose in amending the definition of “church plan” was to completely eliminate any distinction between churches and church-affiliated organizations under ERISA. 

    Justice Sonia Sotomayor wrote a separate concurring opinion to express her concern over the possibility that the Court’s decision could cause many employees who work for organizations that act and operate like secular businesses to be denied ERISA’s protections. She invited Congress to correct the result because these “organizations bear little resemblance” to those Congress considered when enacting the amendment.

    • The opinion accords with the interpretations of the Internal Revenue Service and the Department of Labor. But this did not matter to the Court. It applied no deference to the agencies, beginning and ending the analysis with the statutory text.
    • The Court’s analysis was purely statutory. While both parties argued that the First Amendment (be it the Free Exercise Clause or the Establishment Clause) compelled them to prevail, the Court made no mention of the Constitution or the First Amendment. Thus, its decision does not reach beyond the confines of ERISA.
    • Ultimately, neither the majority nor the concurring opinion allowed any potential harm to existing employee benefits plans to affect its analysis. Because all eight justices deciding the opinion found the answer in the statutory text, the effects on the retirement plan industry were irrelevant.