The United States Supreme Court has ruled that retirement plans sponsored by church-affiliated organizations, such as hospitals, are exempt from ERISA. ERISA’s “church plan exemption” provides that a retirement plan that is “established and maintained” by a church is exempt from ERISA’s funding, participation, vesting, and disclosure requirements, among other provisions. In a unanimous decision issued on June 5, 2017, the Court ruled in Advocate Health Care Network v. Stapleton that the church plan exemption applied to the retirement plans sponsored by three separate church-affiliated hospital systems, reversing decisions by the Third, Seventh, and Ninth Circuit Courts of Appeal. The Court stated that ERISA’s statutory language does not require that a plan be established directly by a church in order for the church plan exemption to apply.
The Court’s ruling validates the longstanding view of the federal agencies tasked with administering ERISA’s retirement plan provisions (the Internal Revenue Service, Department of Labor, and the Pension Benefit Guaranty Corporation) regarding the scope of the church plan exemption, i.e. that plans established by church-affiliated organizations (in addition to plans established directly by churches) are exempt from complying with ERISA’s provisions. The vast majority of church-affiliated retirement plan sponsors administer their plans under this exemption, with the effective endorsement of these administering agencies.
This decision comes during a flurry of litigation against church-affiliated hospital system retirement plan sponsors. The litigation focuses on the severe funding shortfalls of many of these plans, which were not funded according to ERISA’s minimum funding rules. The funding shortfall issue remains largely unresolved from the perspective of the plans’ participants. Accordingly, the Court’s ruling may open the door to more novel claims on issues that the ruling did not address, such as whether church-affiliated organizations’ internal benefit committees are covered under the church plan exemption and whether there are any other avenues of relief (under state law, for example) to address these plans’ funding issues.