It’s All About the Wording! SCOTUS Upholds ERISA Exemption for Church-Affiliated Pensions

June 5, 2017; SCOTUSBlog

The U.S. Supreme Court issued a ruling Monday that affects how many pension plans administered by religious affiliated organizations, are regulated under federal law.

The unanimous ruling in Advocate Health Care Network v. Stapleton upheld Advocate Health Care’s position that, as a religious affiliated organization, they should be exempt from compliance with the Employee Retirement Income Security Act of 1974 (ERISA) and said that lower courts had erred in their interpretation of a 1980 amendment to the law.

Advocate is affiliated with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ, but it is not owned or financially supported by either church. It is, however, a party to contractual relationships with them, in which they “affirm their ministry in health care and the covenantal relationship they share with one another.”

Writing on June 5, 2017 in SCOTUSBlog, Ronald Mann offered an analysis:

The justices’ decision today in Advocate Health Care Network v. Stapleton resolves a question of considerable significance for the world of pension plans: whether the church-affiliated hospitals that play such a major role in our health-care system must comply with the Employee Retirement Income Security Act, which includes an array of rules designed to ensure the solvency of pension plans and otherwise protect the plans’ beneficiaries.

On the one hand, exempting those plans from ERISA exposes the hospitals’ employees to the catastrophe of making career-long contributions to a pension plan that is insolvent by the time they retire—a catastrophe from which ERISA has protected almost all of us for nearly half a century. On the other hand, because compliance is expensive, extending those rules to church-affiliated hospitals would raise the costs of health care at a time when the need for cost containment in the health-care industry could hardly be more pressing. Justice Elena Kagan’s opinion for a unanimous court of eight justices (the case having been argued before Justice Neil Gorsuch joined the court) sidesteps those issues entirely, resting directly on the language of ERISA.

This case was all about language, both in the lower courts as well as in the Supreme Court. Each reached different conclusions.

The original ERISA wording exempted any plan “established and maintained for its employees by a church.” After its adoption, controversy arose when the IRS ruled that it did not extend to hospitals established by orders of Catholic nuns, since the hospitals were not involved in religious functions. Congress then amended ERISA in 1980 to expand the exemption by stating that it included “[a] plan established and maintained for its employees…by a church…includes a plan maintained by an organization…controlled by or associated with a church.”

The focus of this decision, which reversed rulings from the 3rd, 7th, and 9th Circuit Courts of Appeals, has implications for all church-affiliated organizations, not just hospitals. And this all came down to words: how Congress amended ERISA to broaden its reach, and how federal agencies and the Supreme Court interpreted those words. In writing for the 7th Circuit, Judge Rovner indicated the following interpretation:


The plaintiffs’ position: A plan established and maintained by a church also includes a plan established by a church but maintained by a church-affiliated organization.

The district court, siding with the plaintiffs, concluded that the plain language of subsections (33)(A) and (33)(C)(i) together defines church plans as follows:

  • A church plan established by a church and maintained by a church is a church plan.
  • A church plan established by a church and maintained by a church-affiliated organization is a church plan.
  • A church plan established by a church-affiliated organization and maintained by a church-affiliated organization is not a church plan.

In the 21-page opinion, the U.S. Supreme Court, led by Justice Elena Kagan, interpreted this same piece of legislation differently:

With a presentation you would expect to have seen on a PowerPoint slide in one of Kagan’s class sessions from her days as a law professor, the opinion portrays the question of statutory reading as “a simple logic problem”:

Premise 1: A plan established and maintained by a church is an exempt church plan.

Premise 2: A plan established and maintained by a church includes a plan maintained by [an affiliated] organization.

Deduction: A plan maintained by [an affiliated] organization is an exempt church plan.

In sum, “[b]ecause Congress deemed the category of plans ‘established and maintained by a church’ to ‘include’ plans ‘maintained by’ [affiliates], those plans…all those plans…are exempt from ERISA’s requirements.”

Looking at the implications of this decision, a number of issues are at play. First, the Supreme Court deferred to Congressional intent as expressed in the amendment because it saw no ambiguity or valid alternative interpretation in the amendment’s language. Second, in holding that church-affiliated organizations are exempt from the costs and stringent regulations (requiring paperwork and lawyers) of ERISA, employees’ interests in the retirement funds subject to ERISA regulations by religious affiliated organizations could be in jeopardy. Third, concerns for the application of church/religious doctrine to other employee benefits, including health care and contraception access for employees of religious affiliated organizations, are potentially in play.

In a concurring opinion, Justice Sonia Sotomayor agreed with her colleagues that the Congressional language was sufficiently clear and, therefore, Advocacy Health Care Network’s interpretation (and that of federal regulators since 1980) should be followed. However, she also observed that,

[T]o the extent that Congress acted to exempt plans established by orders of Catholic Sisters, […] it is not at all clear that Congress would take the same action today with respect to some of the largest health-care providers in the country. Despite their relationship to churches, organizations such as petitioners operate for-profit subsidiaries, […] earn billions of dollars in revenue, and compete in the secular market with companies that must bear the cost of complying with ERISA. These organizations thus bear little resemblance to those Congress considered when enacting the 1980 amendment to the church plan definition.

Further amendment of ERISA by Congress could provide clarification and/or a different outcome, but that clarification, considering the current political climate, does not seem to be a priority for this Congress.—Carole Levine and Michael Wyland