On June 5, 2017, the U.S. Supreme Court decided 8-0 that religiously affiliated non-profits’ pension plans are exempt from the requirements of the Employee Retirement Income Security Act of 1974 (ERISA) even if they were not originally established by a church. Newly appointed Justice Neil Gorsuch “took no part in the consideration or decision of the cases” regarding the ERISA exemption, the opinion noted.
Writing for the Court, Justice Elena Kagan framed the issue and answered, “The question presented here is whether a church must have originally established such a plan for it to so qualify. ERISA, we hold, does not impose that requirement.” In so ruling, the Supreme Court overturned decisions 3rd, 7th and 9th Circuit Courts of Appeals all of which had concluded that “plain text” of ERISA required that a pension plan be established by a church, and only by a church, to qualify for the church-plan exemption. Justice Sonia Sotomayor joined Justice Kagan’s opinion and commented that she, “agree[s] … that the statutory text compels today’s result.” She then wrote separately to discuss the policy implications of the Court’s decision.
The cases consolidated into this decision were Dignity Health v. Rollins, Advocate Health Care Network v. Stapleton and Saint Peter’s Healthcare System v. Kaplan. Justice Kagan wrote, “The petitioners identify themselves as three church-affiliated nonprofits that run hospitals and other healthcare facilities, and offer DB [defined benefit] pension plans to their employees.”
“Given the questioning by the Justices at oral argument, the result is not surprising,” said Jonathan M. Feigenbaum, an ERISA attorney, based in Boston, Massachusetts who represents individuals, in pension issues and welfare-benefits (health, life and disability) under ERISA. www.erisaattorneys.com
The lawsuits alleged that the plans were underfunded by $4 billion. In contrast, Advocate, Dignity and St. Peter’s all maintained that their pension plans were well-funded. Under ERISA, all private employers, except Church Plans, must:
- fully fund their pension plans,
- pay premiums to the Pension Benefit Guaranty Corp., and
- comply with ERISA disclosures to the plan participants.
ERISA does not require employers to establish pension plans. But if an employer does, ERISA regulates the operation of a pension plan once it has been established.
“The opinion will have mixed ramifications,” says Jonathan M. Feigenbaum. “Exempting the pension plans from the demands of ERISA exposes the hospitals’ employees to a potential bad-outcome. If the employees make career-long contributions to the pension plan, and the pension plans are not adequately funded, the employees are out-of-luck.” He continued, “Congress passed ERISA, in part, after the public became aware of pension plan problems, most notably Studebaker. Its pension plan failed in 1963.”
When the Studebaker pension plan failed, only workers 60 and older received pension payments. Younger employees received either minimal pay-outs, or none at-all. The details are discussed in “The Most Glorious Story of Failure in the Business:” The Studebaker-Packard Corporation and the Origins of ERISA, Buffalo Law Review, Vol. 49, P. 683 (2001) by James Wooten.
On the other hand, “Now that certain affiliated Church Plans’ pensions are exempt from ERISA, participants, if aggrieved can proceed under state law,” said Feigenbaum. In general, ERISA is very employer friendly. Under ERISA participants are barred from suing for punitive and other extra-contractual damages. “The Supreme Court’s decision leaves harmed participants with broader remedies,” said Feigenbaum.