ERISA solutions

ERISA Church Plan Exemption and States Reaction

In 2017, the United States Supreme Court ruled unanimously in Advocated Health Care Network v. Stapleton that the Employment Retirement Income Security Act (ERISA) did not apply to church-affiliated hospitals and assumedly other church-affiliated organizations.

ERISA and Church-Affiliated Organizations

Legislative history suggests that Congress trusts churches to protect and fund their pension plans adequately without Congress imposing requirements upon them. However, data suggests that church-affiliated organizations struggle with adequately contributing to their plans like many other state and private employers.

The Court’s ruling in Stapleton turned on the language of the church plan exemption included in ERISA. The exemption reads, “[a] plan established and maintained for its employees… by a church… includes a plan maintained by an organization… controlled by or associated with a church.”

The Court concluded that even church-affiliated organizations that come up with their own pension plans, rather than the church they are affiliated with doing so, would still be exempt from ERISA’s requirements. The Court reasoned that, “because Congress deemed the category of plans ‘established and maintained by a church’ to ‘include’ plans ‘maintained by’ [affiliates], those plans-… all those plans are exempt from ERISA’s requirements.”

The Court’s decision is a disappointment to employees of church-affiliated organizations hoping to receive pension protection from ERISA, particularly the employees of the three hospitals involved in the instant case-Saint Peter’s Healthcare System in New Jersey, Advocate Health Care Network in Illinois, and Dignity Health in California.

Many employees of these hospitals view their employers as big businesses posing as church-affiliated organizations in order to avoid ERISA’s requirements.

States’ Response to Stapleton Decision

Due to church-affiliated organizations being exempt from ERISA’s federal regulations and requirements, new legal and legislative strategies at the state court level are being introduced to try to protect pension plan participants affected by the Stapleton decision. These participants focus on the fact that the Court’s decision was limited in scope to what Congress intended when it amended the church plan exemption as part of the 1980 ERISA amendments. However, the Court did not establish what types of church-affiliated organizations would meet the exemption or what level of control or association with a church is required in order for an organization to meet the exemption.

An aggressive position is being taken by Stephen Del Soto, the receiver of an insolvent health services retirement plan in Rhode Island. Del Soto’s effort to reclassify and administer the insolvent pension plan as if the plan has been covered by ERISA for years is without precedent. Del Soto made an initial premium payment to Pension Benefit Guaranty Corporation (PBGC), an independent agency established as part of ERISA whose purpose, in part, is to serve as the administrator and subject to limitations, the insurer of pension benefits of distressed, insolvent and bankrupt employers’ pension plans which it has assumed responsibility for. The PBGC is funded by premiums paid by all pension plans covered by its insurance program.

Rhode Island has also passed state legislation that will require pension plans managed by religious organizations in the state to send financial updates to plan participants. This new legislation is still awaiting the governor’s approval before being put into effect.

The tax exemption status of most church-affiliated organizations is currently approved by the IRS. It is predicted that the exemption status for these organizations may undergo stronger scrutiny.

Mark Johnson, Ph.D., J.D., is an experienced pension and ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-0778 or ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.

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