Hospitals that are “church-affiliated” may be breathing easier this week, following the U.S. Supreme Court’s decision on Monday that defined benefit qualified retirement plans (a/k/a pension plans) are not subject to the Employee Retirement Income Security Act (ERISA). The Supreme Court confirmed that ERISA does not require an exempt “church plan” to have actually been established by the church itself.  Rather, certain religious-affiliated healthcare organizations can establish the plans. 

As background, benefit plan sponsors have been long aware that ERISA generally regulates employee benefits plans and imposes certain rules related to plan solvency and protecting plan participants. ERISA contains an exemption for “church plans,” that are “established and maintained” by a church for its employees.  This exemption applies to a wide array of employee benefit plans, including group health plans. But the impact of the exemption in the qualified retirement plan context is particularly stark for an employer plan sponsor.  In the context of defined benefit plans, an exemption from ERISA means an exemption from ERISA’s minimum standards for governmental reporting, participant disclosure, vesting rules, funding requirements, fiduciary responsibility, and insurance mandates.

The ERISA definition of “church plan” was broadened years ago to include a plan that is maintained by an organization that is “associated with a church.”  But a longstanding fight persisted about whether the church plan exemption would extend to religiously-affiliated nonprofit organizations that sponsor plans, with hundreds of Internal Revenue Service, U.S. Department of Labor, and Pension Benefit Guaranty Corporation  rulings and opinion letters having been issued on this very point.

The petitioners in this case were three (3) church-affiliated nonprofit organizations involved with running hospitals.  Each of the hospitals (rather than any affiliated churches of those hospitals) offered defined benefit pension plans to eligible hospital employees.  Lower appeals courts had agreed with the lawsuit’s plaintiffs (current and former employees of these hospitals), reasoning that ERISA would apply to their hospital employer’s defined benefit plans, and therefore would require minimum-funding requirements to have been satisfied by the hospitals. But the Supreme Court reversed, holding that a “church plan” need not have been actually established by the church itself.  The Supreme Court’s ruling is consistent with the applicable federal agencies’ longstanding advisory positions.

The ruling does not signal a change in well-established ERISA interpretation. Rather, it is a useful reminder for nonprofit religious-affiliated hospitals to confirm whether ERISA currently applies to their benefit plans, and then to examine whether they desire for their benefit plans to be crafted as exempt from ERISA. While there are many reasons that these plan sponsors may wish to be exempt from ERISA, they should consult with qualified ERISA counsel to also discuss the drawbacks of obtaining such an exemption (namely, loss of ERISA preemption of certain state laws and litigation risk).