Supreme Court Resolves Scope of Church Plan Exemption Under ERISA
By an unanimous (8-0) decision issued June 5, 2017, the United States Supreme Court broadly construed the “church plan” exemption from the Employee Retirement Income Security Act of 1974 (“ERISA”), to include benefit plans established by church-affiliated organizations. Advocate Health Care Network v. Stapleton, Nos. 16–74, 16–86, 16–25, ___ U.S. ___ (2017), 2017 WL 2407476 (U.S. 2017). In doing so, the Court reversed decisions of three United States Circuit Courts of Appeals and resolved any uncertainty as to how the exemption applies to plans established by church-affiliated organizations such as, in these three cases, hospitals.
The Court noted that the three federal agencies responsible for administering ERISA, the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation, have long read ERISA to exempt plans like the hospitals in the three cases. Citing IRS General Counsel Memorandum No. 39007 (Nov. 2, 1982), as an example, the Court noted that this “interpretation has appeared in hundreds of private letter rulings and opinion letters issued since 1982, including several provided to the hospitals here.” Slip Op. at 4. The court described the three cases before it, all filed as employee class actions alleging that the employers’ plans were required to comply with ERISA, as “part of a recent wave of litigation challenging the agencies’ view.” Id.
The Court agreed with the agencies’ long-held view that an exempt “church plan,” as defined by Subsection (33)(A) of ERISA, 29 U.S.C. § 1002(33), included benefit plans established by church-affiliated organizations. The Court found Congressional intent for that view in a 1980 amendment to ERISA, codified 29 U.S.C. § 1002(33)(C)(i), and providing that “[a] plan established and maintained . . . by a church … includes a plan maintained by [a principal-purpose] organization.” Slip Op. at 6. The Court rejected the employees’ argument that the statute still exempted plans if “maintained” by a church-affiliated organization, but did not change the requirement under Subsection 33(A) that the plan be “established” by a church.
It should be noted that the outcome in these cases, reversing Stapleton v. Advocate Health Care Network, No. 15-1368, 2016 WL 1055784 (7th Cir. Mar. 17, 2016), Kaplan v. St. Peter’s Healthcare System, 810 F.3d 175 (3d Cir. 2015), and Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. 2016), turns solely on statutory construction. The Court did not address any constitutional issues, although such issues had been presented by the hospitals in each of the cases in the lower court proceedings. The Court’s decision also leaves open and expresses no view as to whether the hospitals have the necessary association with a church and, even if they do, whether their internal benefits committees qualify as “principal-purpose organizations” covered by the exemption within the Court’s holding. Slip Op. at 5, n.2. The scope of the Court’s holding is best described in the succinct statement preceding its mandate: “Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it.” Slip Op. at 15. Concurring, Justice Sotomayor expressed some reservations as to Congressional intent based on legislative history, but wholly agreed with the Court’s conclusions in construing the statutory language.
Because it does not reach constitutional issues, the Court’s decision in Advocate Health should not be viewed as indicative of the Roberts Court’s views as to asserted conflicts between the Free Exercise Clause of the First Amendment and regulation of economic activity at the federal level.
