Employment Law Daily Justices urged to clarify ERISA coverage for church-affiliated hospital pension plans
Thursday, July 28, 2016

Justices urged to clarify ERISA coverage for church-affiliated hospital pension plans

By Pamela Wolf, J.D. A pair of petitions filed in the Supreme Court, if granted, would test similar rulings—by the Third and Seventh Circuits—that purportedly overturned 30 years of well-settled law holding that pension plans maintained by otherwise qualifying church-affiliated organizations are exempt from ERISA, regardless of whether the church itself established the plan. According to the two appeals courts, the pension plans are ERISA exempt only if the church "established" the plan. The question comes amid a wave of similar suits against non-profit, church-affiliated hospitals. [In fact, the Ninth Circuit ruled on July 26 that Dignity Health’s pension plan was subject to the requirements of ERISA and did not qualify for ERISA’s church-plan exemption. Agreeing with the Third and Seventh Circuits, the Ninth Circuit held in Rollins v. Dignity Health that a church plan must be established by a church or by a convention or association of churches and must be maintained either by a church or by a church-controlled or church-affiliated organization whose principal purpose or function is to provide benefits to church employees.] The petitions for certiorari in Saint Peter’s Healthcare System v. Kaplan and Advocate Health Care Network v. Stapleton raise the same issue—one that came to the forefront after an alliance of two plaintiff firms started bringing putative class actions against nonprofit religious employers, contending that their pension plans were not church plans because they were not established by churches. The lawyers bringing these suits allegedly "‘have for years together developed and litigated the innovative theory of liability at issue here.’" Below, the Third and the Seventh Circuits upheld district court rulings that the non-contributory defined benefit pension plans of Saint Peter’s Healthcare System and Advocate Health Care Network, respectively, were not exempt from ERISA requirements because their plans were not established by the church. The petitions contend that the appeals court decisions are "squarely at odds with the views of the relevant federal agencies" and that they conflict with decisions of two other federal appeals courts. The Third and Seventh Circuit rulings have "prompted dozens of class-action lawsuits against religious organizations that have relied on the church plan exemption for decades," with 22 suits filed in the last four months alone, according to the petitions. These suits have caused a massive upheaval in the administration of pension plans by religious employers and in addition impose substantial burdens on the judicial system and litigants. "A significant federal regulatory scheme now applies differently in different circuits," the petitions assert. Turning to the defendants in this wave of lawsuits, the petition points out that they are nonprofit organizations that serve the needy "for whom the potential financial liability could be crippling." Affected religious organizations operating in the Third or Seventh Circuit will be compelled to restructure pension plans to comply with ERISA, which means renegotiating contracts with employees whose benefits are covered by collective bargaining agreements, revamping benefit structures, redesigning pension funding policies, and overhauling budget plans. "It would be impossible to unring the bell if the Court later decides that these recent decisions are wrong, and that the three federal agencies that administer ERISA are right," the petitions argue, urging the Justices to take up their cases.

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