By Sheila M Ninneman, JD.
On June 5, 2017, the United States Supreme Court issued their 8-0 decision in Advocate Health Care Network et al. v. Stapleton et al., holding that ERISA’s exemption for a “church plan” includes a plan maintained by a church-associated organization the principal purpose of which is the maintenance of the plan. The petitioners described themselves as church-associated nonprofit healthcare systems that run hospitals and other healthcare facilities. The respondents were current and former employees of the systems who had argued successfully in district courts and in the Third, Seventh and Ninth Circuit Courts of Appeal that petitioners’ defined benefit pension plans were not exempt as “church plans” and, therefore, subject to ERISA’s elaborate regulatory scheme.
The Statute at Issue
The decision hinged on the interpretation of a 1980 amendment to the original Internal Revenue Code definition of a church plan, which states that it is “a plan established and maintained…for its employees…by a church.” The amendment added a separate subparagraph which states that “a plan established and maintained for its employees…by a church…includes a plan maintained by an organization…the principal purpose of which is the administration…of a plan or program for the provision of retirement benefits or welfare benefits…of a church…if such organization is controlled by or associated with a church.” Congress further added that an “employee of a church” included an employee of a church-affiliated organization.
The employees argued that the amendment does not alter the requirement that a church must first establish the retirement plan, which by virtue of the amendment, subsequently can be maintained by what has become known as “principal purpose organizations,” such as a pension boards or administrative committees. Because the pension plans at issue were actually established by the healthcare systems themselves, the employees contended that they do not meet ERISA’s exemption requirements.
The hospitals, on the other hand, argued that the intention of the amendment is to provide that a “plan established and maintained” by a church included “a plan maintained” by a principal purpose organization. As such, they contended that because they were organizations associated with churches, and because their administrative committees’ principal purpose was to maintain the plans, their plans are subject to the “church plan” exemption from ERISA’s reporting, disclosure, participation, vesting, and funding requirements.
The Rationale for the Opinion
In an opinion authored by Justice Kagan, the Supreme Court proffers a variety of rationale for its decision. It begins by noting that the three agencies charged with administering and enforcing ERISA, the Internal Revenue Service, the Department of Labor and the Pension Benefit Guaranty Corporation, have all exempted plans such as those of the healthcare systems in countless administrative actions and decisions.
The Advocate Health Care decision continues by offering a logical syllogism; that is, if a plan “established and maintained” by a church is a church plan, and such a plan includes “a plan maintained” by a principal purpose organization, then the logical deduction is that a plan maintained by a principal purpose organization is a church plan.
The Court further notes that if Congress had intended the result championed by the employees, that is, that only the “maintained by” portion of the original definition was being amended, then it would simply have said “a plan maintained by a church includes a plan maintained by” a principal purpose organization. The Court states that to agree with the employees it would have to ignore the words “established and,” and such a reading would be contrary to the presumption that there is a reason for each word used by Congress, the “so-called surplusage canon.”
The Court also examines the dearth of legislative history, and concludes that, contrary to the employees’ argument, it supports the healthcare systems’ contention that Congress intended to exempt plans maintained by principal purpose organizations, whether or not they were established by churches and whether or not their origin could be determined. Justice Kagan also notes that the Court’s interpretation takes the Internal Revenue Service out of the business of determining what a “church” is for purposes of determining whether a plan was established by one. The Court apparently agrees with the healthcare systems’ position that the 1980 amendment was in response to a highly controversial 1977 ruling by the Internal Revenue Service that had purportedly determined what a church’s religious functions are for purposes of applying the original church plan definition.
A footnote in the opinion may foretell the direction of future litigation, and the concurring opinion may foreshadow future legislation. Indeed, the outcome of future litigation may make the decision in Advocate Health Care a “victory” in a Sisyphean struggle. Justice Kagan footnotes that the employees made two important alternative arguments in the district courts that were not before the Court. The employees had apparently argued that the pension plans of the healthcare systems are not “church plans” because the systems are not sufficiently associated with or controlled by any church. A second argument was that internal benefits committees do not constitute “an organization…the principal purpose of which is the administration…of a plan or program for the provision of retirement benefits or welfare benefits…of a church.” Justice Kagan cautions that nothing in the opinion should be read as expressing the Court’s views of those arguments. In her concurring opinion, Justice Sotomayor states that the reality of today’s healthcare systems, which are far more similar to secular organizations than the church-affiliated organizations considered by the 1980 amendment, could motivate Congress to modify the church plan exemption yet again. In any event, it is very possible that the next round of litigation has already been filed in district court.Findley Post, Health and Group Benefits