In recent years, hospitals have been sued by their employees and former employees challenging the hospitals’ long-taken position that their the pension plans are exempt from ERISA as “church plans.” Each of the pension plans was established by the hospital and maintained by an internal employee benefits committee. Because many of these pension plans are significantly underfunded, losing exempt church plan status would result in billions of dollars in funding costs for the hospitals.
ERISA’s definition of the term “church plan” requires that a church plan be established and maintained by a church for the benefit of its employees. ERISA’s church plan definition was amended in 1980 to add (i) that a plan established and maintained by a church includes a plan maintained by a church-related organization whose principal purpose or function is the administration and funding of the plan (a “principal-purpose organization”) and (ii) that an employee of a church includes an employee of a church-affiliated organization.
In 2015 and 2016, decisions by three federal Courts of Appeals agreed with the suing employees that the hospitals’ pension plans were not church plans because they were not established by a church, even though each plan was arguably maintained by a principal-purpose organization (the internal employee benefits committee).
The three Courts of Appeals decisions focused on the part of ERISA’s church plan definition that says a church plan includes a plan maintained by a principal-purpose organization. All three Courts of Appeals understood the language of the statute as requiring the plan to be established by a church, even if the plan is maintained by a principal-purpose organization.
Because the cases were decided on this part of ERISA’s church plan definition, the Courts of Appeals decisions did not examine other aspects of the church plan definition as they applied to the hospitals and their pension plans, such as whether the plans covered employees of a church-affiliated organization or whether the principal-purpose organizations were associated with or controlled by a church.
The three hospitals appealed. The Supreme Court took their appeals and combined the three cases into one.
In a unanimous decision, the Supreme Court ruled in favor of the hospitals. The Court held that the plain meaning of ERISA’s church plan definition means a plan maintained by a principal-purpose organization is a church plan; the statute does not require that the plan be established by a church, even if maintained by a principal-purpose organization.
However, just like the Courts of Appeals, the Supreme Court stressed that many other questions about the exempt church plan status of the hospitals’ pension plans remain to be decided, including whether the hospitals are sufficiently related to a church that their pension plans cover employees of a church-affiliated organization and whether the hospitals’ internal employee benefits committees are church-related organizations, as required in the church plan definition for principal-purpose organizations. These issues will now be explored further in the lower court proceedings.
It is likely that additional class action lawsuits will be brought against hospitals and other church-related entities sponsoring exempt church plans. Organizations that sponsor employee benefit plans they have treated as exempt church plans should review their plans carefully and make any changes necessary to the plan documents or to plan governance and administration to safeguard the church plan status of their plans.