Supreme Court unanimously backs ERISA exemptions for church plans

The U.S. Supreme Court on Monday decided unanimously that three health-care system retirement plan sponsors are covered by an exemption for church-affiliated plans from the Employee Retirement Income Security Act of 1974.

The 8-0 decision reversed lower-court decisions that Dignity Health, Advocate Health Care and Saint Peter’s Healthcare System are bound by federal pension law, including its funding and reporting rules. The Supreme Court had agreed Dec. 2 to consolidate appeals by the three health-care systems. Arguments were heard in March.

Newly appointed Justice Neil Gorsuch “took no part in the consideration or decision of the cases,” according to the ruling.

Employees had filed lawsuits saying the church-affiliated non-profit health-care systems did not qualify for the church-plan exemption because the plans were established by the health-care systems and not the churches. The court, however, in its ruling said, “A plan maintained by a principal-purpose organization qualifies as a ‘church plan,’ regardless of who established it.”

Pension plans run by church-affiliated organizations have had the option of choosing ERISA coverage but have not been required to do so. Similar class-action lawsuits filed in recent years involved plan sponsors that received private-letter rulings from the IRS exempting them from ERISA as church plans.

“While we are disappointed by the Supreme Court’s ruling, we remain committed to seeking justice for hard-working Americans whose earned retirement benefits are left unprotected by this decision,” said Karen L. Handorf, partner at Cohen Milstein Sellers & Toll and co-counsel for the respondents, in an emailed statement. “The decision avoids deciding whether large non-profit hospital systems meet the requirements for the exemption. We will continue litigating these cases in the courts to ensure that the ‘church plan’ exemption is claimed only in appropriate circumstances.”

“I’m gratified that the court agreed with the IRS’ long-standing interpretation of the statute,” said attorney G. Daniel Miller of Conner & Winters, who is representing the Church Alliance, a coalition of 37 church-related benefit programs’ CEOs and directors. “I actually worked on that legislation back in 1980, and the court’s decision is certainly consistent with how we intended the statue to work when we drafted it.”

The Multiemployer Pension Plan Amendments Act of 1980 interprets the church exemption as a church plan or “convention or association of churches.”