By: Minyon Bolton, JD and Jennifer Kiesewetter, Esq.
On June 5, 2017, the Supreme Court unanimously ruled in favor of three church-affiliated health care system retirement plan sponsors holding that such plan are covered by the exemption for church-affiliated plans under the Employee Retirement Income Security Act of 1974 (ERISA).
The Court's Holding
The Court issued its 8-0 decision in the Advocate Health Care Network, et al. v. Stapleton, et al case (referred to as “Stapleton” or the “Stapleton case”) ruling that a retirement plan qualifies for church plan exemption under ERISA if the plan is maintained by a principle-purpose organization. The Supreme Court’s highly anticipated ruling puts an end to the “established” or “maintained” argument and determines that a plan maintained by a qualifying church agency is a church plan regardless of whether a church first established the plan. Qualification as a church agency requires the church agency to have its principal purpose (or function) in the administration or funding of retirement benefits or welfare benefits.
What Is A Church Plan?
The church plan ERISA exemption, codified at 29 U.S.C. § 1002(33)(A), grants an ERISA exemption to church plans. A “church plan means a plan established and maintained…for its employees (or their beneficiaries) by a church or by a convention or association of churches.” (emphasis added). ERISA further provides that a plan established and maintained by a church includes a plan maintained by a qualifying church agency. Plan participants in the Stapleton case asserted that ERISA meant that a church plan qualified for ERISA exemption only if the plan was first established by a church while the hospital plan sponsoring entities argued that ERISA meant that a church plan qualified for ERISA exemption by virtue of being maintained by a church agency.
So, What Does This Mean?
The Supreme Court’s ruling means that Internal Revenue Service (“Service”), Department of Labor (“DOL”), and Pension Benefit Guaranty Corporation (“PBGC”) interpretations, agency rulings, and treatment of church plans will not be disturbed. The Third, Seventh, and Ninth Circuit Courts previously ruled that Service, DOL, and PBGC treatment of these plans were unpersuasive and lacking deference.
For years, the Service, DOL, and PBGC have treated plans maintained by church agencies as church plans regardless of whether these plans were first established by a church. The Service has issued numerous Private Letter Rulings (which church plans have relied on for ERISA exemption) in addition to internal memorandum affirming church plan status for plans maintained by church agencies. The DOL has issued memorandum and advisory opinions for plans maintained by church agencies and the PBGC has favorably treated church plans through providing defined benefit church plans exemption from paying required insurance premiums and even refunding a portion of previously paid insurance premiums by plans that have converted to church plans.
The Supreme Court’s ruling also means that -- for now -- religiously affiliated entities (like the hospital plan sponsors in Stapleton) can continue to enjoy church plan exemption provided they meet the principal-purpose organization requirement. To that point, the Supreme Court’s ruling does not deem the hospitals in the Stapleton case as principal-purpose organizations. Thus, while the church plan definition under ERISA has been resolved, what entities qualify as principal-purpose organizations (i.e. qualified church agencies) remains unresolved.
As such, the hospital plan sponsors are not entirely off the hook for ERISA coverage. When the three (3) cases consisting of Stapleton are remanded (or sent back) to the lower courts, the hospitals’ qualifying status as a principal-purpose organization will be decided. If the hospital plan sponsors are not deemed principal-purpose organizations, they will not qualify for ERISA church plan exemption which could ultimately result in further appeals and additional Supreme Court review. Entities sponsoring church plans should continue to monitor the Stapleton cases as the issues in these cases are far from finalized.
 Advocate Health Care Network, et al. v. Stapleton, et al., No. 16-74 (appealed from the Seventh Circuit’s March 17, 2016 decision affirming that Advocate Health Care Network, as a church-affiliated organization, was not exempt from ERISA); Saint Peter’s Healthcare System, et al. v. Kaplan, No. 16-86 (appealed from the Third Circuit’s December 29, 2015 decision affirming that as a church agency, Saint Peter’s Healthcare System could not establish an ERISA-exempt plan because Saint Peter’s was not a church); and Dignity Health, et al. v. Rollins, No. 16-258 (appealed from the Ninth Circuit’s July 26, 2016 decision affirming that Dignity Health was not established by a church or by a convention or association of churches).