Supreme Court Backs Church Hospitals, Schools in Case on Pension Rules

By Mark Walsh — June 05, 2017 4 min read
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The U.S. Supreme Court on Monday eased the fears of religious schools across the country on a closely watched benefits issue by ruling that the pension plans of church-affiliated organizations—hospitals, soup kitchens, and homeless shelters in addition to schools—are exempt under the main federal law governing retirement benefits.

The court ruled 8-0 that a retirement plan maintained by a “principal-purpose organization” such as a religious hospital or school qualifies as a “church plan” under the Employee Retirement Income Security Act of 1974, regardless of who established it. Justice Neil M. Gorsuch did not participate in the case, which was argued before he joined the court.

The decision in Advocate Health Care Network v. Stapleton (Case No. 16-74) is a relief to schools and church-affiliated organizations because the justices rejected the interpretation of three federal courts of appeals that held in recent years that ERISA’s exemption for church pension plans applied only if a church “established” the pension plan.

Those lower-court rulings prompted dozens of class-action lawsuits against religious organizations, including schools, that have relied on the church plan exemption for decades. The lawsuits sought billions of dollars in retroactive liability for noncompliance with ERISA’s recordkeeping and other procedural requirements, from which church plans are exempt.

Justice Elena Kagan wrote for the court in Advocate Healthcare, which combined three appeals involving the health plans of church-affiliated hospitals. She explained that Congress included the exemption for churches when it passed ERISA in 1974, and added language in 1980 covering principal-purpose organizations.

Employees who were challenging the exemption for some such church affiliates argued that the 1980 language did not cover principal-purpose organizations that were not established by a church. The hospitals argued that the effect of the 1980 amendment was to bring within the church-plan definition all pension plans maintained by a principal-purposed organization.

“We conclude that the hospitals have the better of the argument,” Kagan said.

Kagan noted that Congress was motivated by Internal Revenue Service letter rulings in the last 1970s that pension plans established by orders of Roman Catholic nuns did not qualify as church plans because the religious orders were not carrying out the church’s religious functions.

Kagan’s opinion seems to side with arguments that “Congress intended to erase” the line between churches and church-affiliated organizations under ERISA.

“Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it,” Kagan said.

Justice Sonia Sotomayor joined the court’s opinion, but she wrote a concurrence to express concern about whether Congress in 1980 would have intended to exempt from ERISA the large church-affiliated hospital networks that have emerged more recently.

“Despite their relationship to churches, organizations such as [the hospital petitioners] operate for-profit subsidiaries, earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of complying with ERISA,” Sotomayor said.

Among the friend-of-the-court briefs in the case was one filed on the hospitals side by the U.S. Conference of Catholic Bishops and the National Catholic Educational Association, which had told the court that a ruling for the employee challenges would have affected “not just Catholic hospitals, but Catholic charities of all shapes and sizes,” including parochial schools and Catholic colleges and universities.

Eric Rassbach, the deputy general counsel of the Becket Fund for Religious Liberty, which also filed a friend-of-the-court brief in support of the hospitals, said in a statement that “The Supreme Court got it right. ... It is simple common sense that nuns, soup kitchens, homeless shelters, seminaries, nursing homes, and orphanages are a core part of the church and not an afterthought.”

[UPDATED Monday 5 p.m.]

Mark E. Chopko, a Washington lawyer who filed a friend-of-the-court brief by the Catholic Health Association of the United States in support of the religious organizations, said in an interview that if the decision had gone the other way, “it’s clear this would have been open season on any number of religious charities, including schools.”

“It would really be an expensive undertaking for smaller religious charities, such as private schools, to figure out what their exposure is on the pension plan,” said Chopko, a former general counsel of the Catholic bishops’ conference.

Karen L. Handorf, a Washington lawyer who helped represent employees challenging the religious groups’ exemption from ERISA, said in a statement, “While we are disappointed by the Supreme Court’s ruling, we remain committed to seeking justice for hard-working Americans whose earned retirement benefits are left unprotected by this decision. ... We will continue litigating these cases in the courts to ensure that the ‘church plan’ exemption is claimed only in appropriate circumstances.”

A version of this news article first appeared in The School Law Blog.