On June 5, 2017, the United States Supreme Court ruled on the applicability of the Employee Retirement Income Security Act of 1974 (ERISA) to church-affiliated pension plans in the case Advocate Health Care Network v. Stapleton. In an 8-0 vote, the Supreme Court confirmed that employee benefit plans of church-affiliated organizations—such as hospitals and other health care facilities—may be included in the “church plan” exemption, even though the plans were not established by a church.
What is ERISA?
ERISA is a federal law that sets minimum standards for most pension and health plans to protect individuals in the plan. These plans must adhere to certain reporting, disclosure, and fiduciary requirements unless they fall under an ERISA exemption. It has long been established that churches are one of the few groups of employers that are not subject to ERISA. This ruling clarified the scope of what constitutes a “church plan” for purposes of the ERISA exemption.
Specifically, the Stapleton ruling considered whether the ERISA exemption applies to plans operated by church-affiliated organizations that are not themselves a church. The defendants in this case —hospitals and other healthcare organizations affiliated with churches—maintain they do not need to comply with ERISA because their pension plans fall under the ERISA church plan exemption. The employees of these healthcare providers, however, filed suit alleging the pension plans provided by their employers do not qualify for the ERISA exemption because they are not “church plans” nor were they established by a church.
The Court’s ruling in favor of the healthcare providers merely confirms the status quo for church-affiliated organizations. For the past 30 years, the Department of Labor (DOL), the Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation—the three federal agencies that govern ERISA— have adopted the view that pension plans administered by church-affiliated organizations fall under the “church plan” ERISA exemption. The Stapleton ruling still marks a decisive victory for all church-affiliated employers because it solidifies their status as exempt from the requirements of ERISA.
How Does this Affect Employee Health and Welfare Benefits?
Although the plans at issue in the Stapleton case involved benefit pension plans, the ruling sets the precedent to expand the exemption for church-affiliated employers to health and welfare plans. Namely, employers considered church-affiliated organizations are not subject to the following ERISA requirements:
- Provide participants with summary plan descriptions and other disclosures;
- Set minimum standards for participation, vesting, benefit accrual, and funding;
- Requires accountability of plan fiduciaries; and
- Annually file Form 5500
What Does this Mean for Church-Affiliated Employers?
Just because a church-affiliated employer may be exempt, it does not mean it should automatically rule out adhering to ERISA. There are many benefits and protections afforded by ERISA that church-affiliated employers should carefully consider.
First, ERISA employee benefit plans enjoy preemption of state law. This means if a plan participant were to sue the employee plan sponsor, ERISA would shield the employer from state claims, punitive damage liability, jury trial and adherence to any state laws governing employee benefit plans.
Second, by having written plan terms in the form of an ERISA plan document, the employer and plan participants have a mutual understanding of how the plan operates. In the event of any disputes arising in relation to plan benefits, the terms the plan sponsor established in its plan document will control. Without a written plan document, plan sponsors and plan participants may struggle with ambiguity regarding how the plan sponsor administers the plan.
Third, ERISA offers employee plan participants a sense of security by requiring plan fiduciaries to meet certain standards of conduct as well as providing plan disclosure requirements to participants and their beneficiaries.
Click here to download Unanimous Supreme Court Ruling: Church-Affiliated Organizations Not Subject To ERISA: Issue Date: June 14, 2017.