ERISA Religious Exemption Expanded: SCOTUS Says Church Affiliation is Enough

by Obermayer Rebmann Maxwell & Hippel LLP
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Overview

In a sigh of relief for faith-based healthcare providers, on Monday, June 5th, the U.S. Supreme Court held, in a decision authored by Justice Elena Kagan, that the Employee Retirement Income Security Act’s religious exemption provision covers all benefit plans maintained by religious group affiliates, even if the plan is not established by the religious group itself.

The High Court’s decision concerned class action lawsuits filed by 300,000 former and current employees of three religiously affiliated hospitals that ran their own pension plans. The hospitals involved were Illinois’ Advocate Health Care, which is affiliated with the Evangelical Lutheran Church in American, and New Jersey’s Saint Peter’s Healthcare System and California’s Dignity Health, which are both Roman Catholic related.

Had the employees prevailed, the hospitals would have been liable under ERISA for a pension funding shortfall to the tune of four billion dollars. ERISA otherwise covers most nonprofits and, in addition to minimum funding requirements creates numerous other rights and responsibilities for benefit plan participants and administrators.

Opinion at a Glance

Essentially, the Supreme Court was faced with whether a 1980 amendment to ERISA dropped the requirement that church plans must be “established and maintained . . . by a church” by expanding the definition of “church plan” to include plans “maintained by an organization . . . controlled by or associated with a church.”

Breaking down the plain text of the statute, the Court reasoned that if a plan established and maintained by a church equals an exempt church plan, and a plan established and maintained by a church includes plans maintained by church-affiliated organizations, then plans maintained by church-affiliated organizations must also be exempt from ERISA requirements.

The Court was unconvinced by counterarguments that the churches themselves must establish the plans used by their affiliates in order to meet the exemption. The Court further noted that the three federal agencies tasked with administering ERISA—the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation—had long interpreted ERISA as covering religiously affiliated organizations like the hospitals.

Further Analysis and Future Implications

Even though Monday’s decision covered only three hospitals, the class actions involved 300,000 former and current employees and an alleged pension funding shortage of nearly four billion dollars.  While the Supreme Court decision arguably confirmed the status quo, it could still embolden church-affiliated healthcare providers to race to the bottom by cutting benefits to boost profits.  With one out of five hospital beds provided by religiously affiliated facilities, this could affect millions of American healthcare workers.

Rather than slow down the ERISA class action litigation wave against religiously affiliated healthcare providers, future litigation efforts may simply be redirected toward what qualifies as an organization controlled by or associated with a church.  In addition to healthcare providers, such lawsuits could target charitable aid and relief organizations, colleges and universities, and any number of other groups with religious ties.

While the decision was joined by all justices except for Justice Neil Gorsuch, who was appointed to the Court after the case was presented at oral argument, Justice Sonia Sotomayor filed a concurring opinion that agreed with her colleagues’ statutory interpretation but expressed concern over its practical implications. Justice Sotomayor observed that the three hospitals involved, which operate for-profit subsidiaries and reap billions of dollars in annual revenue, bear a striking resemblance to their ERISA-bound secular competitors.  Although our current Congress probably does not share Justice Sotomayor’s apprehensions, future legislators could take aim at this seeming loophole.

Conclusion

We at HR Legalist urge all readers, whether their organizations are overtly religious or unabashedly secular, to review their benefit plans, reach out to preferred legal counsel, and make sure that their plans pass muster under ERISA and related employee benefit laws.

A copy of the Court’s opinion in Advocate Health Care Network et al. v. Stapleton et al. may be viewed here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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