United States: Supreme Court Decision Upholds ERISA "Church Plan" Exemption For Church-Affiliated Organizations

Last Updated: December 21 2017
Article by Mark E. Bokert and Alan Hahn

The U.S. Supreme Court recently upheld the applicability of the Employee Retirement Income Security Act of 1974 (ERISA) "church plan" exemption for certain tax-exempt church-affiliated organizations (also referred to as "principal-purpose organizations"). The unanimous decision in Advocate Health Care Network v. Stapleton1 has great sig- nificance for employee benefit plans maintained by church-affiliated organizations, such as church sponsored health care institutions, which may have taken the view that the substantive requirements of ERISA did not apply to their plans. However, following the Stapleton decision, certain open questions remain with respect to which entities are suf- ficiently "church-affiliated" and thus, exempt from ERISA. As discussed in more detail below, church-affiliated organizations should review the requirements of the "church plan" exemption and their plan administra- tion procedures with their ERISA counsel to determine if they are within the exemption.

Statutory Background

Under ERISA, employee benefit plans are subject to a comprehen- sive regulatory scheme, designed to ensure plan solvency and protect plan participants. Among other requirements, ERISA includes reporting and disclosure mandates, participating and vesting requirements, and funding standards. In enacting the statute, however, Congress expressly exempted "church plans" from ERISA's requirements.

ERISA defines the term "church plan" to mean "a plan established and maintained ... for its employees ... by a church or by a convention or association of churches."2 In 1980, Congress amended ERISA to expand the definition of "church plan" by adding that "a plan established and maintained ... by a church ... includes a plan maintained by an organiza- tion ... the principal purpose or function of which is the administration or funding of a plan ... for the employees of a church ..., if such orga- nization is controlled by or associated with a church."3

Supreme Court Decision

At issue before the Supreme Court in Stapleton was the question of whether "church plans" must be "established" by churches. Specifically, the respondents, current and former hospital employees, alleged that the hospital's pension plan did not fall within ERISA's "church plan" exemption (and thus must satisfy ERISA's requirements) because the pension plans were not established by the church. Petitioners, three church-affiliated nonprofits that run hospitals and offer their employees pension plans, argued that ERISA's "church plan" exemption does not require plans to be established by the church, as long as the plans are maintained by church-affiliated organizations. The District Courts that recently ruled on the original cases agreed with the employees' position, and held that the hospitals' plans were not "church plans" and needed to comply with ERISA. The Courts of Appeals for the Third, Seventh, and Ninth Circuits affirmed those decisions and the Supreme Court granted certiorari to review those findings.

The Supreme Court's decision, written by Justice Kagan, is based almost entirely on statutory interpretation, and the precise language used by Congress in the amendment to ERISA. Ultimately, the Court concluded the following: "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."4 This determination provides protec- tion to church-affiliated plan sponsors and shuts down the argument that such plans must comply with ERISA. Further, while the plans at issue in Stapleton were pension plans, the protections of the Stapleton decision should extend to other employee benefit plans, including 401(k) and 403(b) defined contribution plans, 457 deferred compensation plans, and health and welfare plans, which are maintained by church-affiliated organizations. However, as discussed below, the Court's decision begs the question of what is a "principal-purpose organization."

Open Questions

While Stapleton brings clarity to a question that had arisen in many cases across the country, other questions remain. The most significant question, which the Court did not address, is what it means for an organization to be "controlled by or associated with a church."

  • What organizations are sufficiently affiliated with a church to qualify as exempt from ERISA?

    The Court did not discuss the criteria or attributes that must be met in order for an organization to be deemed a church-affiliated organization that may maintain a plan under the "church plan" exemption. Plaintiffs may turn their focus and pursue claims that church-affiliated organizations are not sufficiently tied to churches to be eligible for the exemption.
  • Will Congress amend ERISA to narrow the "church plan" exemption?

    In Stapleton, Justice Sotomayor delivered a concurrence in which she agrees with, but questions, the outcome of the decision. In particular, she points out that employees who work for organizations that "look and operate much like secular businesses" will suffer by not being afforded the protections of ERISA. She queries whether the outcome, which benefits organizations with thousands of employees and billions in revenue, is consistent with the intent of the "church plan" exemption as currently written. In response to such concerns, it is possible that Congress could act to expressly narrow the scope of the "church plan" exemption.

Considerations for Church-Affiliated Organizations

In light of the Stapleton decision and the significance of being exempt from ERISA, church-affiliated organizations are advised to review benefit plan administration and governance with their ERISA counsel to confirm the requirements of the church plan exemption are being satisfied.

  • Review the organization's affiliation with a church. Along with religiously affiliated health care institutions (like the petition- ers in Stapleton), charities, educational institutions, universities, and other entities with religious affiliations may seek to rely on the "church plan" exemption. Such organizations should analyze and document its connections with a church, including factors that demonstrate a degree of "control by" the church. Further, ERISA provides that an organization is associated with a church "if it shares common religious bonds and convictions with that church or convention or association of churches.5" Certain organizations, particularly those founded many years ago, should consider whether these bonds have withstood the test of time.
  • Review plan documents and materials. Church-affiliated orga- nizations should review plan documents to be sure that ERISA is not invoked. Plans relying on the "church plan" exemption may want to avoid using customary ERISA language in its com- municating materials and may be better served by expressly disclosing that the plan is a church plan, maintained by a church-affiliated organization.
  • Review plan administration and management. Regardless of whether ERISA is applicable, it is advisable for church-affiliated organizations to adopt formal governance structures and admin- istration procedures with respect to benefit plans. For example, plans should be administered by a committee that adheres to ERISA-like standards.

Conclusion

The Supreme Court's recent decision brings some clarity for church- affiliated organizations that have relied on, or seek to rely on, the "church plan" exemption. The decision is a wake-up call to all religiously affiliated organizations to examine their plans and programs and evaluate new risks and opportunities created by the decision. At the same time, these organizations need to appreciate that the terrain may shift once again down the road. In the future, it is likely that challenges will focus on the basis upon which a church-affiliated organization is controlled by or associated with a church. Plan administrators of church plans should review these issues and work with counsel to determine if they meet the requirements of a church-affiliated organization.

Footnotes

1. No. 16-74 (U.S. June 5, 2017).

2. § 1002(33)(A).

3. § 1002(33)(C)(i).

4. Advocate Health Care Network v. Stapleton, No. 16-74 (U.S. June 5, 2017).

5. § 1002(33)(C)(iv).

Originally Posted from Employee Relations Law Journal, Winter 2017, with permission from Aspen Publishers

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions