The U.S. Supreme Court ruled in June that certain religiously affiliated organizations can continue to operate their pension funds as church plans and so are exempt from some Employee Retirement Income Security Act rules.
That was great news for health systems that were dragged through the courts in recent years. However, executives at other organizations operating church pension plans — everything from universities to YMCAs — should not get complacent.
Employees challenged the hospital systems arguing the church plan designation left their pensions with less protection regarding funding requirements, vesting rights and federal insurance protection in case the plans became insolvent. The petitioners had won three previous lower court rulings.
The high court's ruling in Advocate Health Care Network vs. Stapleton reversed the lower courts and provided clarity for hospitals, but it still falls short of offering a blanket exception. The ruling said: "A plan maintained by a principal-purpose organization qualifies as a 'church plan,' regardless of who established it." That means, in essence, that so long as the organization is controlled by a religious organization, it qualifies for an exemption.
Church plans are exempt from some ERISA rules if they are "established and maintained for its employees by a church" or "maintained by an organization ... controlled by or associated with a church." Plans exempt from ERISA also are exempt from certain provisions of the Internal Revenue Code and regulations. This means certain government filings, such as the Form 5500 and the underlying audit, are not required; participation and funding rules are also different from what would be required for private-employer retirement plans. Also, the insurance protections of the Pension Benefit Guaranty Corp. are not available to defined benefit retirement plans that are church plans.