ERISA contains an exemption for "church plans." They are simply not covered by ERISA, so these plans are free to ignore a seemingly endless number of restrictions that apply to plans that are maintained by other private employers. But when does a plan qualify as a church plan? Must it have been initially established by a church? Or is it enough that the plan is maintained by an otherwise qualifying church-affiliated organization such as a hospital?
On December 2 the US Supreme Court granted certiorari in three cases in which the lower courts held that it is not enough that a plan is currently maintained by a church or by a church-controlled or church-affiliated organization. The holdings were that the plan also must have been initially established by a church or by a convention or association of churches. The following cases have been consolidated for one hour of argument some time in 2017: Advocate Health Care Network v. Stapleton [Supreme Court briefs], Saint Peter’s Healthcare System v. Kaplan [Supreme Court briefs], and Dignity Health v. Rollins [Supreme Court briefs].
These cases could possibly up-end thirty years of administrative interpretations that have granted a church plan exemption even though a plan was not initially established by a church – so long as it is maintained by an otherwise qualifying organization that is associated with or controlled by a church.
All three cases present the issue as follows:
The Employee Retirement Income Security Act of 1974 (“ERISA”) governs employers that offer pensions and other benefits to their employees. “Church plans” are exempt from ERISA’s coverage. 29 U.S.C. §§ 1002(33), 1003(b)(2). For over thirty years, the three federal agencies that administer and enforce ERISA—the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation—have interpreted the church plan exemption to include pension plans maintained by otherwise qualifying organizations that are associated with or controlled by a church, whether or not a church itself established the plan.
The question presented 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.
ERISA Subsection (33)(A) defines a church plan as a “plan established and maintained” by a church. [Emphasis added.]
Subsection (33)(C) states as follows:
(C) For purposes of this paragraph— (i) A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches. [Emphasis added.]
In each case, the employees are saying that Subsection (33)(A) requires that two separate elements must both be met for the exemption to apply: (1) a church must first create or establish the plan and then (2) maintain the plan.
And the plans are saying that Subsection (33)(C) enlarges the definition of a church plan.
The lower courts essentially are holding that Subsection (33)(C) is dealing with a subset of church plans, and is not put there to enlarge the definition of a church plan. Put simply, to qualify as a church plan a church must both first create or establish the plan and then also maintain the plan.
Are there already some tea leaves we should be reading? The Supreme Court issued a stay of the 9th Circuit's ruling that a pension plan operated by Dignity Health does not qualify for ERISA’s church-plan exemption. Dignity Health v. Rollins (US Supreme Court 09/21/2016) [Text of Supreme Court order] The stay will remain in effect while the Court decides these cases. One might read this action as indicating that the Court is leaning toward overruling the lower courts in all three cases. I read that action as merely wanting to preserve the status quo while a decision is being made.
Meanwhile, I have considerable trouble with the plans' argument that Subsection (33)(C) changes (that is, expands) the Subsection (33)(A) definition. We shall see.
[For recent decisions and pending employment law cases, see US Supreme Court Watch.]