The United States Supreme Court has unanimously ruled that employee benefit plans established by church-affiliated organizations are church plans exempt from the Employee Retirement Income Security Act (ERISA). ERISA generally obligates private employers offering benefit plans to adhere to an array of rules related to reporting, disclosure and fiduciary responsibility.
The case is Advocate Health Care Network et al., v. Stapleton et al.
Church plans are exempt from ERISA’s requirements. Originally, ERISA defined a church plan as a plan established and maintained for its employees by a church. Congress later amended ERISA to expand that definition by adding a provision that says a plan established and maintained by a church includes a plan maintained by an organization, the principal purpose of which is the administration or funding of such plans if the organization is controlled by or associated with a church. The Supreme Court’s opinion refers to these organizations as principal-purpose organizations.
Employees of three church-affiliated nonprofits that run hospitals and other healthcare facilities filed lawsuits claiming that the organizations did not qualify for the exemption. The Third, Seventh and Ninth Circuit Courts of Appeals all agreed with the participants and ruled that the plans were subject to ERISA.
The Supreme Court consolidated the cases and has now reversed those lower court rulings. The Supreme Court held that a plan maintained by a principal-purpose organization qualifies as a church plan, regardless of who established it.
Justice Sotomayor wrote a concurring opinion in which she expressed her concerns with the result, noting that church-affiliated hospitals constitute some of the largest health-care providers in the country, operate for-profit subsidiaries and compete in the market with hospitals that must comply with ERISA. While ERISA imposes more requirements on retirement plans, this ruling also affects welfare plans. Presumably, this ruling would also apply to church-affiliated schools. Congress may make note of these concerns and act to narrow the definition, but for now, church-affiliated organizations should be safe in claiming ERISA pre-emption.
The group health plan requirements of the Affordable Care Act apply to church plans. The mandate that group health plans cover all forms of female contraceptives with no cost sharing does not apply to religious employers. The definition of religious employers is very narrow and only applies to churches, not church-affiliated organizations.
A draft of revised regulations has been leaked and the revised rules would allow any employer that objects to contraceptive coverage to be exempt from the contraceptive mandate. Even if the leaked regulations are not finalized in their current form, church-affiliated employers might rely on this Supreme Court ruling to argue they are exempt from the contraceptive mandate. If the leaked regulations are finalized in their current form, there will likely be lawsuits claiming the regulations do not comply with the Administrative Procedures Act, which requires that proposed regulations go through a period of public comment before being finalized.