Alerts and Updates

Supreme Court Allows ERISA Exemption for Church-Affiliated Hospitals

June 6, 2017

Under the best reading of ERISA, a plan maintained by a principal-purpose organization qualifies as a church plan, regardless of who established it.

On June 5, 2017, the Supreme Court held that a plan maintained by an organization whose principal purpose is the administration or funding of a plan (a “principal-purpose organization”) qualifies as a “church plan” under the Employee Retirement Income Security Act of 1974 (“ERISA”), without regard to whether a church originally established the plan. This decision is a welcome result for church plan sponsors and allows such sponsors to continue to rely on their church plan status under ERISA.

At issue in Advocate Health Care Network v. Stapleton was whether church-affiliated nonprofits that run hospitals and offer their employees defined-benefit pension plans would be entitled to church plan treatment under ERISA when the plans themselves were established by the hospitals and not churches. Such church plan designation is important because ERISA exempts church plans from its otherwise comprehensive regulation of employee benefit plans, which include reporting and disclosure mandates, participation and vesting requirements, and funding standards.

The case at issue involved current and former hospital employees alleging that their employers’ pension plans did not fall within ERISA’s church plan exemption—and therefore must satisfy all of the statute’s requirements—because those plans were not established by a church. The Court performed a detailed analysis of ERISA’s original statutory language, as well as a 1980 amendment to ERISA that expanded the definition of a church plan to include principal-purpose organizations that maintain such plans. The parties disagreed as to whether a plan maintained by a principal-purpose organization must still have been established by a church to qualify for the church plan exemption.

Writing for the Court, Justice Kagan concluded that “[b]ecause Congress deemed the category of plans ‘established and maintained by a church’ to ‘include’ plans ‘maintained by’ principal-purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements.” Therefore, under the best reading of ERISA, a plan maintained by a principal-purpose organization qualifies as a church plan, regardless of who established it.

The Court’s ruling provides welcome confirmation to existing church plans that were not initially established by a church, as they can continue to rely on their church plan status. Had the Court decided otherwise, such plans would be subject to increased ERISA compliance and costs.

For Further Information

If you have any questions about this Alert or the impact of the decision, please contact any of the attorneys in our Employee Benefits and Executive Compensation Practice Group or the attorney in the firm with whom you are regularly in contact.

About Duane Morris

Attorneys in the Employee Benefits and Executive Compensation practice group at Duane Morris counsel employers sponsoring ERISA church plans with respect to satisfaction of all applicable fiduciary obligations and other related issues.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.