Supreme Court sides with church-affiliated hospitals over pension dispute

View of the Supreme Court building
The Supreme Court unanimously ruled Monday that religious hospitals don’t have to comply with federal laws that protect pension plans. sframephoto/iStock/Getty Images Plus

The Supreme Court unanimously ruled Monday that religious hospitals don’t have to comply with federal laws that protect pension plans.

In the 8-0 ruling (PDF), Justice Elena Kagan wrote that church-affiliated organizations are exempt from the Employee Retirement Income Security Act, which was established in 1974 to force private employers to abide by rules that protect pension plan participants. 

The decision reversed the rulings of lower courts of appeals, which had determined that the three religiously-affiliated nonprofit hospital systems incorrectly classified their pensions as “church plans” and underfunded their employee pension plans.

The case has implications for millions of workers across the country.

All justices sided with the three hospital systems: Saint Peter's Healthcare System in New Jersey, Dignity Health in California and Advocate Health Care in Illinois, which were sued for underfunding their employee pension plans. Justice Neil Gorsuch did not participate in the ruling because arguments were heard before he joined the court.

Kagan wrote that pension plans operated by a religiously affiliated hospital are exempt from the law regardless of whether the churches established the plans or whether organizations affiliated with the churches set up the plans.

Although Justice Sonia Sotomayor agreed with the ruling based on the interpretation of the law, she wrote in a separate opinion that she was “troubled by the outcomes of these cases,” noting that church-affiliated organizations that operate for-profit subsidiaries employ thousands of employees, earn billions of dollars in revenues and compete with companies that must comply with ERISA. She said that these organizations bear little resemblance to those Congress considered when enacting the 1980 amendment to the church plan definition and suggested that Congress may want to reconsider this and take action.

Although this is a significant victory for the hospitals, Tess Gee, a member of the ERISA & Employee Benefits Litigation practice at Miller & Chevalier, told FierceHealthcare in an emailed statement that the dispute is far from over.

The decision marks what is likely just the first battle in determining what the church plan exemption means, she said. At least twice in the Supreme Court opinion, she said the Court emphasized that it was not deciding whether the internal committees that administer the plans of the defendant hospitals were plans maintained by principal-purpose organizations (although the IRS believes that is so) or that they are “associated” with a church.

Under the Court’s construction, Gee said the “different type of plan” that falls within the ERISA exemption, is “a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church, … if such organization is controlled by or associated with a church or a convention or association of churches.”

"Each of the italicized terms will require separate analysis of not only their legal interpretation, but also factual meaning—e.g., what is the structure of the internal plan committee and how does it operate, who are its members, what functions does it perform, what is its relationship to the church, etc.," Gee said. "Further, this analysis will be unique for each 'organization.'"

Gee also noted that in the opinion, Justice Kagan made it clear the interpretation of these terms “are not before us and nothing we say in this opinion expresses a view of how they should be resolved.” Furthermore, in her concurrence, Justice Sotomayor stated that these terms should be construed “with a view toward effecting ERISA’s broad remedial purposes.” Gee said that this suggests that although Sotomayor agreed with the majority for now, she believes the interpretation of these terms could still envelop these hospital plans within the scope of ERISA coverage.