Legal Law

Statewide Responses to the ERISA Church Plan Exemption

In 2017, the United States Supreme Court ruled unanimously in Defended health care network v. Stapleton that the Employment Retirement Income Security Act (ERISA) did not apply to church-affiliated hospitals and supposedly other church-affiliated organizations.

ERISA and church affiliated organizations

Legislative history suggests that Congress relies on churches to adequately protect and fund its pension plans without requirements from Congress. Yet the data suggests that church-affiliated organizations struggle to contribute adequately to their plans like many other state and private employers.

The judgment of the Court in Stapleton activated the church plan exemption language included in ERISA. The exemption says: “[a] plan established and maintained for its employees … by a church … includes a plan maintained by an organization … controlled by or associated with a church. “

The Court found that even church-affiliated organizations that create their own pension plans, rather than the church with which they are affiliated, would be exempt from ERISA requirements. The Court reasoned that “[b]because Congress considered the category of plans ‘established and maintained by a church’ to ‘include’ plans ‘maintained by’ [affiliates], those plans -… everybody those plans are exempt from ERISA requirements. “

The Court’s decision is a disappointment to employees of church-affiliated organizations hoping to receive pension protection from ERISA, particularly employees of the three hospitals involved in the current case: Saint Peter’s Healthcare System in New Jersey, Advocate Health Care Network in Illinois, and Dignity Health in California.

Many employees at these hospitals view their employers as large companies posing as church-affiliated organizations to avoid ERISA requirements.

State response to Stapleton Decision

Because church-affiliated organizations are exempt from federal ERISA regulations and requirements, new legal and legislative strategies are being introduced at the state court level to try to protect pension plan participants affected by the Stapleton decision. These participants focus on the fact that the Court’s decision was limited in scope to what Congress intended when it amended the church plan exemption as part of the 1980 ERISA amendments. However, the Court did not establish what types of church-affiliated organizations would comply with the exemption or what level of control or association with a church is required for an organization to comply with the exemption.

Stephen Del Soto, the recipient of an insolvent healthcare retirement plan in Rhode Island, is taking an aggressive stance. Del Soto’s effort to reclassify and manage the insolvent pension plan as if the plan had been covered by ERISA for years is unprecedented. Del Soto made an initial premium payment to Pension Benefit Guaranty Corporation (PBGC), an independent agency established as part of ERISA whose purpose, in part, is to serve as the trustee and subject to limitations, the insurer of grieving, insolvent pension benefits. . and pension plans of bankrupt employers for which you have assumed responsibility. The PBGC is funded by the premiums paid for all pension plans covered by its insurance program.

Rhode Island also passed state legislation that will require pension plans run by religious organizations in the state to send financial updates to plan participants. This new legislation is still awaiting approval from the governor before it goes into effect.

The tax-exempt status of most church-affiliated organizations is currently approved by the IRS. It is anticipated that the exemption status of these organizations may come under more rigorous scrutiny.

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