On June 5, 2017, the U.S. Supreme Court expanded the scope of ERISA’s church-plan exemption in the case of Advocate Health Care Network v. Stapleton, — S. Ct. –, 2017 WL 2407476 (2017). The unanimous decision adopted a broad reading of the exemption to apply not only to plans originally established by churches, but also to plans maintained by certain church-affiliated organizations.
As a general matter, ERISA requires private employers that offer pension plans to follow an array of rules intended to ensure solvency and protect plan participants. So-called “church plans,” however, are exempt from ERISA’s requirements. 29 U.S.C. § 1003(b)(2).
When originally enacted, ERISA defined a “church plan” as a plan “established and maintained” for its employees by a church. 29 U.S.C. § 1002(33)(A). In 1980, Congress amended the statute to modify the definition, explaining that: “A plan established and maintained for its employees … by a church … includes a plan maintained by an organization … the principal purpose … of which is the administration or funding of a plan … for the employees of a church …, if such organization is controlled by or associated with a church[.]” 29 U.S.C. § 1002(33)(C)(i). These types of church-affiliated organizations are referred to as “principal-purpose organizations.”
Under this definition, it was commonly understood that a “church plan” need not have been maintained by a church, but rather could also be maintained by a principal-purpose organization. However, the parties differed about whether a plan maintained by a principal-purpose organization still had to have been established by a church to qualify for the church-plan exemption. The U.S. Courts of Appeals for the Third, Seventh, and Ninth Circuits ruled that a pension plan must be established by a church to qualify for the church-plan exemption. See, e.g., Rollins v. Dignity Health, 830 F.3d 900, 906 (9th Cir. 2016).
The Decision in Stapleton
In Stapleton, the U.S. Supreme Court resolved this question by holding that ERISA’s church-plan exemption applies to pension plans maintained by church-affiliated organizations—even if they were not originally “established” by a church.
In a colorful opinion written by Justice Kagan, the Court deployed canons of statutory construction to find the “best reading” of the statute: “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.” The result is that “a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it.”
Although Stapleton provides church-affiliated organizations with more freedom from ERISA’s requirements, the decision raises new questions:
- What organizations are sufficiently church-affiliated to qualify as principal-purpose organizations for the exemption? Following Stapleton, the next wave of litigation will likely focus on what qualifies as an organization controlled by or associated with a church for purposes of the church-plan exemption. Courts will be called on to flesh out what degree of church control or association is sufficient and what is simply too attenuated. Such lawsuits may be directed against not only religiously-affiliated healthcare providers like those involved in Stapleton, but also charities and relief organizations, educational institutions, and a diverse array of other entities with religious connections.
- Will plaintiffs pursue alternative state-law claims against church plan? Since Stapleton will block plaintiffs from pursuing ERISA claims against many organizations, plaintiffs may instead attempt to pursue claims under state law, such as breach of fiduciary duty claims.
- Will Congress take action to narrow the church-plan exemption? In her concurrence, Justice Sotomayor agreed with the result, but highlighted her concern that the decision to exempt plans neither established nor maintained by a church would have a broad effect that Congress might not have intended. Of particular concern, she noted that the exemption would apply to some of the largest health-care providers in the country that compete in the secular market with companies that must bear the cost of comply with ERISA. Although any legislative change is unlikely, Justice Sotomayor’s discussion of this “current reality” was clearly intended to prompt legislators into considering whether Congress should “take a different path.”