Supreme Court Confirms Standards for ERISA’s Church Plan Exception

In a clear win for religiously-affiliated employers, including hospital systems and educational institutions, a unanimous Supreme Court found that a statutory exception to ERISA’s requirements for “church plans” applies to plans that are maintained by tax-exempt entities affiliated with churches in Advocate Health Care Network v. Stapleton.

The employee benefit plans at issue provided pension benefits to employees of health systems and hospitals that were affiliated with churches. For decades, the plans relied on the church plan exception to ERISA’s rules contained in Section 4(b)(2) of ERISA. That provision exempts church plans from many of ERISA’s requirements, including minimum funding requirements for pension plans. The IRS, Department of Labor and PBGC had all recognized that such plans met the requirements for church plan status.

Recent litigation had challenged this status quo, claiming that the plans were established by health systems—not churches—and therefore ineligible for the church plan exemption. Several circuit Courts of Appeal had adopted that standard for determining whether a plan was in fact eligible for the exception. The Supreme Court, however, confirmed the church plan status for such plans in its application of the statutory text. The Court’s holding was consistent with 35 years of guidance and hundreds of IRS and Department of Labor rulings on this topic, many of which had been relied upon by sponsors of the plans in structuring their employee benefit programs. 

To qualify for the exception, a plan still must be “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 organization is controlled by or associated with a church.” Thus, plan sponsors should ensure that their plans are maintained by an administrative committee or other body whose principal purpose is to administer the plan and which is controlled by or associated with a church. Assuming that standard is met, church plan status should be permitted, thereby exempting the plan from many of ERISA’s strict requirements.

This was a critical decision for many pension plans sponsored by church-affiliated entities, allowing them to avoid hundreds of millions of dollars in funding requirements. It also will help to resolve dozens of class action claims brought by plaintiff-employees who were attacking church plan status of their employer’s plans.

Please contact Tony Antognoli or your regular Hinshaw attorney with any questions regarding the application of this decision.