On Monday, June 5, 2017, the Supreme Court handed down a long-awaited decision on church plans in favor of the church plan sponsors. The case revolved around whether plans that were maintained by church-affiliated entities (in this case, hospitals) met the exemption for church plans from compliance with the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA governs, among other things, retirement plans sponsored by employers for their employees and contains rigorous requirements for these plans, including minimum funding and contributions for certain plans, reporting/disclosure requirements as well as coverage under the PBGC insurance program (a federal insurance-type program for defined benefit plans). Church plans are generally exempt from ERISA, and many church plans have received opinion letters from the IRS and DOL over the past 40+ years stating such. However, since many pension plans (church plans and non-church plans) have become underfunded over the past few years, some employees have sued these church plan sponsors claiming that since the plan was not “established and maintained” by a church, it did not meet the requirements to be exempt from ERISA and, therefore, should fully fund these plans.
The three church-affiliated hospitals in this case sponsor defined benefit pension plans for its employees. The plans were not established by churches but were established by the church-affiliated entities/hospitals. The question before the court was whether these plans could be considered church plans under ERISA and remain exempt from compliance with ERISA. By being exempt from ERISA, church plans are not required to meet the minimum funding requirements (among other requirements) of ERISA.
The Supreme Court sided with the hospitals and disagreed with the plaintiffs by holding that those plans maintained by these hospitals were considered church plans under current law. This is likely a relief to many church plans across the United States; had the ruling gone the other way, many church-affiliated groups would likely not have had the funds available to fund their plans in accordance with ERISA’s requirements. Ongoing suits have been settled by many church plan sponsors by agreeing to contribute significant funds to their pension plans. This ruling from the Supreme Court is welcoming news for church plan sponsors who likely do not have adequate resources to make significant contributions to their pension plans had the ruling gone the other way.
Despite this win at the SCOTUS, there are still many cases pending in various courts challenging these church plans. The ruling answers a specific question but leaves the door open for further challenges based on other language in the law. So, while this was a welcomed “win” for church plan sponsors, stay tuned for the next chapter as the lower courts apply the SCOTUS ruling in their decisions.