ERISA Law Update: Supreme Court to Address When Church-Affiliated Plans are Governed by ERISA

In our article of August 15, 2016 entitled “When is a Group Long-Term Disability Insurance Plan Not an ERISA Plan? When it’s Established and Maintained by a Church to Qualify as an ERISA-exempt Church Plan – That’s When,” we discussed a Ninth Circuit Court of Appeals ruling in Rollins v. Dignity Health, 2016 WL 3997259 (9th Cir. July 26, 2016), which decided when church-affiliated pension plans  are subject to the Employee Retirement Income Security Act of 1974.  Agreeing with the Third and Seventh Circuits, the Ninth Circuit held that ERISA’s church plan exemption applies only if a church “established” the plan.  The United States Supreme Court on Friday December 2, 2016 accepted and consolidated three cases, including Rollins, that consider whether pension plans operated by church-affiliated organizations are subject to ERISA.

In class action lawsuits, employees suing St. Peter’s Healthcare System, Advocate Health System and Dignity Health claim the Christian-affiliated hospitals are evading ERISA’s minimum funding and reporting requirements, which place these plans in financial risk.

The plaintiffs are seeking retroactive penalties for past violations of ERISA.  The church-affiliated hospitals have defended these suits in part by invoking their reliance on interpretations by federal agencies (the Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corporation) that enforce ERISA and have interpreted the church plan exemption in ERISA to apply to church-affiliated organizations, even if a church itself did not initially establish the pension plan.

The question presented in these cases is whether the church plan exemption applies so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan.

Our Take:  this case presents highly important issues to church-affiliated plans and we’ll bet that the Supreme Court reverses these decisions.  These recent decisions have upset the settled expectations of many church-affiliated ministries, which provide benefits to millions of current and former employees across the country.  Those religious employers, many for decades, have relied on the agencies’ established, unanimous administrative interpretation when designing their benefits programs.

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