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U.S. Supreme Court Favors Religious-Affiliated Hospital Retirement Plans

Jun.07.2017

In a surprising unanimous decision on June 4, the U.S. Supreme Court ruled that the pension plans of religious-affiliated non-profit hospital and health care systems are exempt from the stringent funding and other requirements of the Employee Retirement Income Security Act. The ruling reversed the decisions of the U.S. Court of Appeals for the Third, Seventh and Ninth Districts which held that the hospital and health care systems were bound by ERISA and, in particular, had to comply with ERISA’s heightened funding, reporting and disclosure provisions. The ruling had the potential to impact billions of dollars in additional pension plan costs for many large hospital systems and other religious-affiliated organizations such as schools that had long believed they could rely on what is commonly known as ERISA’s “church exemption.”

The fight over this issue is far from over, however. The case involved Dignity Health, Advocate Health and Saint Peter’s Healthcare System and ultimately rested upon whether a church was required to initially establish the retirement plan or whether such plan needed to be simply maintained by the church-affiliated entity. The court ruled that “a plan maintained by a principal-purpose organization qualifies as a ‘church plan’, regardless of who established it,” provided that it is controlled by or associated with a church and its principal purpose or function is the administration or funding of the plan.

Although it remains to be seen, it is entirely likely that plan participants will find other creative ways to file suit against hospitals and health care systems operated by religious organizations in connection with the operation of their employee benefit plans. Some open questions are as follows:

  • Since ERISA does not apply to these retirement plans, whether such plans have properly complied with applicable state law, including trust and contract laws.
  • Whether employers maintaining the plans are, in fact, “principal-purpose organizations.”
  • Whether there will be pressure on state legislatures and Congress to provide stricter funding level and other “ERISA-like” protections for these plans. In that regard, Justice Sotomayer noted that the original exemption may not have foreseen or intended protection of multi-billion dollar health systems.
  • Whether the healthcare systems 1) have sufficient nexus of control by (or association with) a religious organization, and 2) can demonstrate a principal purpose or function to administer or fund the plan.
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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

David McFarlane
Partner – Los Angeles
Phone: +1 213.443.5573
Email: dmcfarlane@crowell.com