In Advocate Health Care Network v. Stapleton, 581 US __, 2017 WL 2407476 (2017), the U.S. Supreme Court affirmed long standing precedent that non-profit, church-affiliated hospitals are exempt from ERISA requirements. Employee pension plans are generally subject to the requirements of ERISA. However, “church plans” are excluded from ERISA coverage. 29 U.S.C. § 1003(2). A “church plan” is defined as “a plan established and maintained…for its employees… by a church or by a convention or association of churches.” 29 U.S.C. §1002(33)(A). This includes “a plan maintained by an organization… the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches.” Id. at §1002(33)(C)(i). For simplicity, these can be referred to as “principal-purpose organizations” (PPO). PPOs include church-affiliated hospitals. An employee of a church or association of churches includes “an employee of an organization…exempt from tax… and which is controlled by or associated with a church or a convention or association of churches,” i.e. an employee of a PPO. Id. at §1002(33)(C)(ii)(II).
Circuit courts have been divided over whether the above language as a whole requires pension plans to be both established and maintained by a church to be eligible for the church plan exemption, or whether they need only be maintained by a PPO to be eligible. The Supreme Court recently resolved this split in the circuits and explained how to read the statutory language above. In Advocate Health Care, the Court upheld the traditional agency interpretation of the church plan exemption. Organizations and courts have been relying for some time on a General Counsel Memo from the IRS that said retirement plans for employees of a religious organization that functions as a nursing home or hospital are church plans if maintained either: (1) by the Catholic Church or (2) by a church-affiliated PPO. Gen. Couns. Mem. 39007, 1983 WL 197946 (July 1, 1983). The Supreme Court found that the IRS memo states the proper interpretation.
Specifically, the Court found that ERISA does not require a plan to have been established by a church to be considered a church plan. Advocate Health Care at *4. Rather, pension plans simply maintained by a PPO are eligible for the church plan exemption. Id. PPOs such as religiously-affiliated hospitals may maintain pension plans, and those pension plans can be considered church plans even though they were not necessarily established by a church. Therefore, a church-affiliated hospital can maintain a pension plan for its employees and it will likely be considered a church plan exempt from ERISA’s requirements, including adequate funding requirements.
