The employee retirement plans of religious-affiliated nonprofits are exempt from the protections and requirements of the federal pension law, a unanimous U.S. Supreme Court ruled on Monday.
The decision was a blow to multimillion-dollar class actions that seek to hold those plans liable for violating the federal law.
The high court, led by Justice Elena Kagan, rejected arguments from plaintiffs firms that the Employee Retirement Income Security Act of 1974, or ERISA, required a church to have originally established a “church plan” in order to qualify for an exemption from the employee-retirement law.
“This is the kind of case where you have to stare at the statutory language to understand why,” said Kagan, who read her opinion from the bench. In the end, however, it was “elementary logic” that certain plans of church-affiliated nonprofits count as “church plans” even though not actually administered by a church, she said.
The ruling was a significant victory for three religious-affiliated nonprofits that were represented in the high court by Lisa Blatt of Arnold & Porter Kaye Scholer.
Blatt’s clients are the target of class actions from firms that include Washington’s Cohen Milstein Sellers & Toll and Seattle’s Keller Rohrback.
Blatt had told the court that the two law firms sought “billions of dollars in retroactive liability and a wholesale upheaval in the administration of pension plans affecting religious employers and employees across the country.” Blatt argued in the high court in March.
In the trio of high court cases—Advocate Health Care Network v. Stapleton, Dignity Health v. Rollins and Saint Peter’s Healthcare System v. Kaplan—the justices reversed contrary rulings by the Third, Seventh and Ninth circuit courts of appeals.
Kagan focused on two provisions in ERISA: the definition of a “church plan”—which, she wrote, initially meant only a plan “established and maintained” by a church; and a later amendment providing that the definition includes a plan maintained by a principal-purpose organization.
“In effect, Congress provided that the new phrase can stand in for the old one as follows: ‘The term ‘church plan’ means a plan established and maintained by a church [a plan maintained by a principal-purpose organization].’ The church-establishment condition thus drops out of the picture,” Kagan concluded.
Kagan also noted that the three federal agencies responsible for administering ERISA have “long read” those provisions to exempt plans like the hospitals in the case.
The employees’ lawyers had argued that “hundreds of church-associated hospital conglomerates, often at the urging of ‘gotcha’ benefit consultants, have in recent decades exploited a misreading of ERISA to lower their costs by claiming church-plan status for plans that had been operated—correctly—as ERISA plans.” They said those plans now are often substandard and underfunded, and no church stands behind them.
Justice Sonia Sotomayor, who agreed with the resolution of the dispute, wrote separately to express that she was “nonetheless troubled by the outcome of these cases.” Nothing in the legislative history, she wrote, endorses the court’s ruling.
“That silence gives me pause: The decision to exempt plans neither established nor maintained by a church could have the kind of broad effect that is usually thoroughly debated during the legislative process and thus recorded in the legislative record,” Sotomayor wrote.
Sotomayor noted that the hospitals involved in the cases “earn billions of dollars in revenue” and “compete in the secular market with companies that must bear the cost of complying with ERISA.”
Sotomayor wrote: “These organizations thus bear little resemblance to those Congress considered when enacting the 1980 amendment to the church plan definition. This current reality might prompt Congress to take a different path.”
— Read IRS Establishes Church Plan Procedures on ThinkAdvisor.