Supreme Court Clarifies “Church Plan” Definition for ERISA Exemption Purposes
A recent U.S. Supreme Court decision in Advocate Health Care Network v. Stapleton implicates the benefit plans maintained by nonprofit entities affiliated with a church or religious organization, including many hospitals and health care systems,1 as well as the participants in such plans. This decision relates to when an organization can legitimately claim church plan status, reversing opinions issued by the Third, Seventh and Ninth Circuit Courts of Appeal.2 While the Circuit Court rulings restricted church plan status primarily to benefit programs established by churches, the Supreme Court ruled that plans for employees of certain church-affiliated organizations do not need to be established by a “church” to qualify as a “church plan” exempt from the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Determining whether a plan qualifies as a “church plan” is critical because the compliance obligations of church plans are not as onerous as ERISA-covered plans. Plans subject to ERISA must comply with specific requirements, including those aimed at protecting plan participants. For example, ERISA-covered plans must report to government agencies, provide disclosures to participants, adhere to specific vesting rules and satisfy funding rules. Plans that are classified as “church plans” are exempt from these requirements, unless the plan sponsor makes an election to be covered by ERISA.
In 1980, Congress expanded the definition of a church plan to include 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.”
(This article refers to such organizations as a “Church-Related Organization”).3
Whether this change permits a Church-Related Organization to rely on the church plan exemption depends on statutory interpretation. Starting in 2013, a number of class actions were filed by participants claiming that Congress did not intend plans of Church-Related Organizations to be exempt from ERISA if they were not established by a church. In filing these lawsuits, participants had two primary concerns: the ability to vest in their benefits in accordance with ERISA rules and ensuring that their plans were sufficiently funded to provide future benefits.
Three separate Courts of Appeals agreed with the plaintiffs, all deciding that the plans needed to be established by a church in order to be exempt from ERISA as “church plans.” Because of the significance of the underlying issue and potential wide-ranging effects, the Supreme Court granted certiorari. In the Supreme Court’s unanimous ruling4, it looked at both the wording of the statute and the intent of Congress, concluding that a plan does not need to be established by a church to claim church plan status, exempt from ERISA. The opinion concludes that church plan status extends to benefit plans that are established by Church-Related Organizations.
It is unlikely that the decision in Advocate is the last word on this matter. Future church plan litigation may focus on whether, based on the specific facts, the plan sponsor can show it is truly a Church-Related Organization. Other actions may involve a determination of whether a committee managing the plan can substantiate that it is a Church-Related Organization whose primary purpose is to maintain and fund the plan.
While plan sponsors may find comfort in this Supreme Court decision, they should make certain that their plans are, in fact, church plans exempt from ERISA. Entities relying on the church plan exemption should review their organizational documents and charters to confirm that they have a sufficient connection to a church to be a Church-Related Organization. Likewise, benefit committees that have oversight responsibilities for church plans should review their committee structure and governing documents to support that its principal purpose is to maintain or fund the plan.
- See: Advocate Health Care Network v. Stapleton, decided on June 5, 2017. See U.S., Nos. 16-74, 16-86, and 16-258, 581 U.S. _____ (2017).
- Saint Peter’s Healthcare System v. Kaplan, See 810 F.3d 175 (2015); Rollins v. Dignity Health, See 830 F.3d 900 (2016); Stapleton v. Advocate Health Care Network, See 817 F.3d 517 (2016).
- See: ERISA Section 1002(33)(C)(i).
- Note that newly-appointed Judge Gorsuch did not participate in this decision and Justice Sotomayor wrote a concurring opinion.