ADVOCATE HEALTH CARE: THE LOGICAL EXEMPTION OF CHURCH PLANS
On June 5, 2017, the U.S. Supreme Court in Advocate Health Care Network, et al. v. Stapleton et al., 581 U.S. ___ (2017), answered whether a church must have originally established an employee benefit plan for it to qualify as an exempted “church plan” under ERISA, to which the Supreme Court answered, no. The Supreme Court held that “a plan maintained by a ‘principal purpose organization’ qualifies as a ‘church plan,’ regardless of who established it.”
The Employee Retirement Income Security Act (ERISA) is broad in scope and provides rules and regulations for private employers to follow with regard to their employee benefit plans. However, “church plans” are exempted from these rules. The three cases considered by the Supreme Court in Advocate Health were class actions filed by the employees of hospitals alleging that their employer’s pension plans, established by the hospitals and not a church, do not fall within ERISA’s church plan exemption because the plans were not “established” by a church. The employers – self-described as “three church-affiliated nonprofits that run hospitals” – contend that their plans do fall within the ERISA church plan exemption as a plan maintained by a principal purpose organization. The hospitals’ position comports with the longstanding interpretation of the exemption expounded by the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation.
The definition of a “church plan” under ERISA in §3(33)(A) originally provided that, “[t]he term ‘church plan’ means a plan established and maintained … for its employees … or by a convention or association of churches.” In 1980, Congress amended the statutory definition by adding §3(33)(C)(i), which provides 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 or funding of [such] plan … for the employees of a church …, if such church organization is controlled by or associated with a church.”
The crux of the question to the Supreme Court is – does the word “includes” obviate the need for the plan to be “established” by a church. The Supreme Court says, yes. In the opinion, Justice Kagan focused on a plain, “natural reading” of the language of the statute and considered it a “simple logic problem:”
Premise 1 [§33(A)]: A plan established and maintained by a church is an exempt church plan.
Premise 2 [§33(C)(i)]: A plan established and maintained by a church includes a plan maintained by a principal-purpose organization.
Deduction: A plan maintained by a principal-purpose organization is an exempt Church plan.
Essentially, “[I]f A is exempt, and A includes C, then C is exempt.”
The Supreme Court, however, expressly declined to address the employees’ alternative arguments that “the hospitals do not have the needed association with a church and … even if they do, their internal benefits committees do not count as principal-purpose organizations[,]” as those issues were not before them.
So, although the Supreme Court’s ruling in Advocate Health resolves the circuit split on whether an employee benefit plan established by a principal-purpose organization can be considered an ERISA exempted “church plan,” it leaves open the question of what extent of control and association is needed between a church and the organization to create the necessary association to be considered a principal-purpose organization.