The U.S. Supreme Court has ruled in three cases that pension plans established by church affiliated organizations are “church plans” that are exempt from ERISA (the Employee Retirement Income Security Act of 1974). The cases are Advocate Health Care Network v. Stapleton, U.S., 6/5/17; Saint Peter’s Healthcare Sys. v. Kaplan, U.S., No. 16-86, 6/5/17; and Dignity Health v. Rollins, U.S., No. 16-258, 6/5/17.
The Supreme Court’s decision overrules contrary decisions by three federal appellate courts. It thus reinstates longstanding administrative rulings of the Internal Revenue Service, Department of Labor and Pension Benefit Guaranty Corporation (PBGC) that exempted plans established and maintained by church affiliated organizations.
As a result of the Court’s decision, church affiliated organizations that establish and maintain pension plans are not required to comply with ERISA’s pension plan funding requirements or to be part of the PBGC insurance program. (However, they have always been permitted to elect to do so.)
The Court’s decision also may impact other employee benefit plans established and maintained by church affiliated organizations. For example, ERISA reporting and disclosure requirements do not apply to any such plans. Likewise, a self-insured medical plan of a church affiliated organization would not have to comply with certain ERISA rules pertaining to medical plan benefits.
Another impact of the Court’s decision is that plan participants in church plans do not have a right to bring claims for benefits under ERISA. Presumably, any such actions must be brought under applicable state law. This may be a two edged sword for church affiliated organizations. ERISA has an employer-friendly claims procedure that will not apply, and claimants may be able to sue for punitive and other extra-contractual damages that are not available under ERISA.
Finally, it is important to note that the Court’s ruling does not address certain requirements of the law that an affiliated organization be “controlled by or associated with a church or a convention or association of churches”. Historically, this requirement for church plan status has attracted very little scrutiny. It would not be surprising to see additional litigation challenging church plan exemptions along those lines.