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Supreme Court: Hospitals’ pension plans are church plans

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in Office Management,Payroll Management

Some of the largest health care and hospital systems in the U.S. are affiliated with religious organizations. In a significant win for these organizations, the U.S. Supreme Court has ruled that defined benefit pension plans offered and maintained by hospitals associated with religious organizations are, nevertheless, church plans, which are excluded from ERISA, the federal benefits law. (Advocate Health Care Network v. Stapleton, No. 16-74, U.S., 2017)

ERISA’s church plan exclusion. Retirement plans established by churches—so-called church plans—are excluded from ERISA’s regulatory requirements. Under another ERISA exclusion, church plans include any plan maintained by a principal-purpose organization, which generally includes religiously affiliated hospitals.

Three church-affiliated nonprofit hospitals and other health care facilities established defined benefit pension plans for their employees. The plans were established by the hospitals themselves—not by a church—and were managed by internal employee-benefits committees. Some employees sued, arguing that while the plans can be maintained by a principal-purpose organization, the plans still had to be established by a church. Federal trial and appellate courts agreed with the employees.

That’s what Congress wrote, but what does it mean? The Supreme Court reversed and ruled for the hospitals. Supreme Court: Because Congress deemed the category of plans established and maintained by a church to include plans maintained by principal-purpose organizations, those plans, and all of those plans, are exempt from ERISA’s requirements. Had Congress wanted to alter only the maintenance requirement, the Supreme Court said, it had an easy way to do so—it could have changed two words from the language it chose.

THE TAKEAWAY: The Supreme Court’s opinion was a broad affirmation of ERISA’s church plan exemption. Although the opinion involved hospitals, it applies equally to any religiously affiliated organization, like a school system, that establishes defined benefit pension plans for its employees.

As you evaluate the impact of this opinion on your organization, it’s important to understand what motivated these employees to sue in the first place: They wanted their plans to be covered under ERISA because a portion of their benefits would be guaranteed to be paid out, should the plan sponsor declare bankruptcy. You need to address these concerns with your employees, too.

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