On June 5, the U.S. Supreme Court (the Court) issued a unanimous decision in the case of Advocate Health Care Network et al. v. Stapelton et al. that expands the ERISA exemption for church plans to include plans established by church-affiliated organizations. The decision is a departure from prior “plain text” judicial readings of the exemption, but it aligns with the interpretations of other federal agencies.
The Employee Retirement Income Security Act (ERISA) is federal law that governs retirement and health benefit plans sponsored by private-sector employers. The law sets strict standards for plans and imposes fiduciary duties upon the sponsoring employers. Importantly, though, ERISA provides an exemption from its applicability for church-sponsored plans. Whether the exemption is available only to plans established by churches, or if it may also apply to plans established by church-affiliated organizations, is the central question in Advocate.
The case of Advocate centered on pension plans sponsored by church-affiliated hospitals. Hospital employees filed suits alleging the hospital plans were ineligible for the ERISA exemption because the plans were established by hospitals, not churches. The hospitals, asserted that their church affiliation resulted in the plans falling under the exemption for church plans. Thus, the question for the Court was whether a plan must be established by a church in order to qualify as a church plan.
The Court decided that a plan maintained by a "principal-purpose organization" qualifies as a church plan regardless of who established the plan. A principal-purpose organization is an entity that is affiliated with a church. In sum, the Court reasoned that a plan sponsored by a principal-purpose organization (a church-affiliated entity) may avail itself of the church plan exemption under ERISA in the same way that it could if the plan were established by the church itself.
This decision is not limited to pension plans, but applies more broadly to the availability of the exemption to any benefit plan sponsored by a church or principal-purpose organization - including health and welfare plans.
While the Court's decision settles the question of whether a plan must be established by a church in order to qualify as a church plan, there are important considerations that remain for church-affiliated employers:
- What constitutes a principal-purpose organization? The Court didn't establish a bright-line test to determine whether an entity qualifies as such an organization. Consequently, whether a particular church-affiliated hospital or school may be considered a principal-purpose organization so as to fall under the church plan exemption of ERISA is unclear.
- Is ERISA applicability preferable to an exemption? Though ERISA imposes various requirements on plans and plan sponsors, it also provides preemption from state laws and protection from many state law causes of action. In short, an employer may prefer its plan submit to ERISA regulation rather than seek an exemption.
- Was ERISA status voluntarily elected? An employer can voluntarily elect ERISA applicability for its benefit plan, which may be done by indicating that the plan is an ERISA plan in any plan document or benefit materials. If the plan voluntarily elected ERISA status, the church plan exemption will not apply.
Church-affiliated employers should carefully consider the availability of the ERISA exemption in light of the Court's decision and should seek the advice of counsel prior to operating under the assumption that a benefit plan is exempt.