On June 5, 2017, the U.S. Supreme Court held that the employee benefit plans of church-affiliated hospitals and healthcare facilities may be exempt from the federal Employee Retirement Income Security Act of 1974 (ERISA), in Advocate Health Care Network et al. v. Stapleton et al. More background information can be found in our December legal alert on this case.

ERISA, which regulates employee benefit plans, contains an exemption for “church plans” – that is, plans “established and maintained” by a church for its employees. In 1980, Congress amended the definition of “church plan” to include a plan “maintained by an organization” which is “associated with a church,” if the organization’s principal purpose is the administration or funding of a plan for providing benefits to employees.

Federal agencies have taken the position that this expanded definition of “church plan” includes benefit plans of church-affiliated nonprofit organizations, such as hospitals, where the plan was established by the hospital itself, and not by the church, but the courts have split on this issue. In Advocate Health Care Network, the Supreme Court resolved this split, holding that it is not necessary that the plan be established by the church, and that the ERISA church plan exemption encompasses benefit plans established and maintained by church-affiliated organizations. The Court determined that this interpretation gave effect to Congress’ intention of treating churches and church-affiliated organizations comparably under ERISA.

The petitioners in Advocate Health Care Network were three church-affiliated nonprofit organizations that run hospitals and healthcare facilities. The Court did not address whether these hospitals and facilities were sufficiently controlled by or affiliated with a church to qualify under the ERISA “church plan” exemption, and the Court’s decision leaves the door open to further litigation on what entities do, or do not, qualify as church affiliated plans.

Under this ruling, the church-affiliated pension plans will be exempt from the provisions of ERISA that are designed to protect pension plan participants and ensure plan solvency. In a concurring opinion, Justice Sotomayor expressed concern that the Court’s opinion would deny ERISA’s pension plan protections to thousands of employees who work for hospitals and other organizations that “look and operate much like secular businesses.”

Nevertheless, while this case involved pension plans, it is important to note that the ERISA “church plan” exemption also applies to employee welfare benefit plans, which includes plans established to provide medical, accident, disability, and other types of benefits to employees. The ERISA civil enforcement provisions afford certain protections to covered plans in lawsuits brought by plan participants regarding disputes over plan benefits, including the right for the plan to remove the lawsuit to federal court, preemption of state law remedies, and limitations on damages recoverable by participants. While the Court’s opinion in Advocate Health Care Network inured to the benefit of the church-affiliated plan entities in the context of the pension plan regulations at issue in that case, these entities may find themselves disadvantaged in future litigation over plan benefits, when they are denied the protections and remedial limitations that ERISA affords to covered employee benefit plans.