United States: Unanimous Supreme Court Decision In Favor Of "Church Plan" Defendants

Last Updated: July 20 2017
Article by René E. Thorne and Charles F. Seemann III

Today, the Supreme Court handed a long-awaited victory to religiously affiliated organizations operating pension plans under ERISA's "church plan" exemption. In a surprising 8-0 ruling, the Court agreed with the Defendants that the exemption applies to pension plans maintained by church affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Justice Kagan authored the opinion, with a concurrence by Justice Sotomayor. Justice Gorsuch, who was appointed after oral argument, did not participate in the decision. The opinion reverses decisions in favor of Plaintiffs from three Appellate Circuits – the Third, Seventh, and Ninth.

For those of you not familiar with the issue, ERISA originally defined a "church plan" as "a plan established and maintained . . . for its employees . . . by a church." Then, in 1980, Congress amended the exemption by adding the provision at the heart of the three consolidated cases. The new section provides: "[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization." The parties agreed that under those provisions, a "church plan" need not be maintained by a church, but they differed as to whether a plan must still have been established by a church to qualify for the church-plan exemption.

The Defendants, Advocate Health Care Network, St. Peter's Healthcare System, and Dignity Health, asserted that their pension plans are "church plans" exempt from ERISA's strict reporting, disclosure, and funding obligations. Although each of the plans at issue was established by the hospitals and not a church, each one of the hospitals had received confirmation from the IRS over the years that their plans were, in fact, exempt from ERISA, under the church plan exemption because of the entities' religious affiliation.

The Plaintiffs, participants in the pension plans, argued that the church plan exemption was not intended to exempt pension plans of large healthcare systems where the plans were not established by a church.

Justice Kagan's analysis began by acknowledging that the term "church plan" initially meant only "a plan established and maintained . . . by a church." But the 1980 amendment, she found, expanded the original definition to "include" another type of plan—"a plan maintained by [a principal-purpose] organization.'" She concluded that the use of the word "include" was not literal, "but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition."

Thus, according to Justice Kagan, because Congress included within the category of plans "established and maintained by a church" plans "maintained by" principal-purpose organizations, those plans—and all those plans—are exempt from ERISA's requirements. Although the DOL, PBGC, and IRS had all filed a brief supporting the Defendants' position, Justice Kagan mentioned only briefly the agencies long-standing interpretation of the exemption, and did not engage in any "Chevron-Deference" analysis. Some observers may find this surprising, because comments during oral argument suggested that some of the Justices harbored concerns regarding the hundreds of similar plans that had relied on administrative interpretations for thirty years.

In analyzing the legislative history, Justice Kagan aptly observed, that "[t]he legislative materials in these cases consist almost wholly of excerpts from committee hearings and scattered floor statements by individual lawmakers—the sort of stuff we have called `among the least illuminating forms of legislative history.'" Nonetheless, after reviewing the history, and as she forecasted by her questioning at oral argument (see our March 29, 2017 Blog, Supreme Court Hears "Church Plan" Erisa Class Action Cases), Justice Kagan rejected Plaintiffs' argument that the legislative history demonstrated an intent to keep the "establishment" requirement. To do so "would have prevented some plans run by pension boards—the very entities the employees say Congress most wanted to benefit—from qualifying as `church plans'.... No argument the employees have offered here supports that goal-defying (much less that text-defying) statutory construction."

In sum, Justice Kagan held that "[u]nder 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."

Justice Sotomayor filed a concurrence joining the Court's opinion because she was "persuaded that it correctly interprets the relevant statutory text." Although she agreed with the Court's reading of the exemption, she was "troubled by the outcome of these cases." Her concern was based on the notion that "Church-affiliated organizations operate for-profit subsidiaries, employee thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA." This concern appears to be based on the view that some church-affiliated organizations effectively operate as secular, for-profit businesses.

Takeaways:

  • Although this decision is positive news for church plans, it may not be the end of the church plan litigation. Numerous, large settlements have occurred before and since the Supreme Court took up the consolidated cases, and we expect some will still settle, albeit likely for lower numbers.
  • In addition, Plaintiffs could still push forward with the cases on the grounds that the entities maintaining the church plans are not "principal-purpose organizations" controlled by "a church."

If you maintain a church plan, reach out to us with any concerns about the impact of, and your ability to rely on, this decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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