High Court Expands Religious Exemption for Retirement Plans

WASHINGTON (CN) – The exemption in federal pension law for church retirement plans should apply even to plans not initially established by a church, the U.S. Supreme Court ruled Monday.

This morning’s reversal stems from class actions against Advocate Health Care Network by current and former employees. 

Advocate runs 12 hospitals and 250 other health care facilities in Illinois. Though it is not a church, it has contractual relationships with the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ.

Maria Stapleton and the other workers claimed that Advocate had failed to meet various safeguards for their plans required by the Employee Retirement Income Security Act.

by not funding the plan at sufficient levels, requiring employees to work for five years before benefits are fully vested, and not clarifying participants’ rights to future benefits.

Among other things, ERISA establishes minimum funding, vesting requirements and fiduciary responsibilities for plan administrators, but church plans are exempt from such requirements.

In the case at hand, the workers claimed that Advocate violated ERISA by not funding the plan at sufficient levels, requiring employees to work for five years before benefits are fully vested, and not clarifying participants’ rights to future benefits.

Stapleton and the other plaintiffs argued that, even if Advocate could dodge liability under ERISA’s church-plan exemption, the exemption is a violation of the First Amendment’s prohibition on a state establishment of religion.

Though the Seventh Circuit advanced the case last year, the Supreme Court was unanimous this morning in reversing.

“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 those plans— are exempt from ERISA’s requirements,” Justice Elena Kagan wrote for the court (emphasis in original).

Though no judge dissented from the ruling, Justice Neil Gorsuch did not participate in the decision. He had not yet been confirmed when the court heard oral arguments in March.

In the ruling, Kagan warned against strictly interpreting the statute’s mention of what a church plan will now “include.”

“That use of the word ‘include’ is not literal — any more than when Congress says something like ‘a state “includes” Puerto Rico and the District of Columbia.’ Rather, it tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition.” (Parentheses in original.)

If Congress had wanted to accomplish what the employees are arguing, according to the 15-page ruling, it could have done so.

“But Congress did not adopt that ready alternative,” she said. “Instead, it added language whose most natural reading is to enable a plan ‘maintained’ by a principal-purpose organization to substitute for a plan both ‘established’ and ‘maintained’ by a church. That drafting decision indicates that Congress did not in fact want what the employees claim.”

Justice Sonia Sotomayor concurred but called the case’s outcome troubling in a separate opinion.

“As the majority acknowledges, the available legislative history does not clearly endorse this result,” the concurrence states. “That silence gives me pause: The decision to exempt plans neither established nor maintained by a church could have the kind of broad effect that is usually thoroughly debated during the legislative process and thus recorded in the legislative record. And to the extent that Congress acted to exempt plans established by orders of Catholic Sisters, it is not at all clear that Congress would take the same action today with respect to some of the largest health care providers in the country.”

Organizations like Advocate may be church-related, Sotomayor said, but they “bear little resemblance to those Congress considered when enacting the 1980 amendment to the church plan definition.”

With thousands of employees and billions of dollars in revenue, Sotomayor noted, the for-profit subsidiaries that these organizations operate “compete in the secular market with companies that must bear the cost of complying with ERISA.”

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