Supreme Court Holds "Church Plan" Need Not Be Established by a Church
Generally speaking, employee benefits are subject to the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. (ERISA). Various types of employee benefit plans, however, are exempt from ERISA. One of ERISA’s exemptions is for “church plans.” Earlier this month, the United States Supreme Court confirmed the broad reach of the church plan exemption with a textbook statutory interpretation analysis. Advocate Health Care Network v. Stapleton, ____ S. Ct. ___, 2017 WL 2407476 (June 5, 2017).
Church Plan Exemption
Certain plans are exempt from ERISA’s reach, including “church plans.” See 29 U.S.C. § 1003(b). Originally, ERISA defined “church plan” to include only those plans “established and maintained . . . by a church or by a convention or association of churches.” Stapleton, 2017 WL 2407476, at *3 (quoting 29 U.S.C. § 1002(33)(A)). The definition was subsequently amended to capture additional church-related plans. In 1980, Congress added the following provision:
A plan established and maintained . . . by a church or by a convention or association of churches includes a plan maintained by an organization . . . the principal purpose or function of which is the administration or funding of a plan
. . . for the employees of a church or a convention or association of churches if such organization is controlled by or associated with a church or convention or association of churches.
29 U.S.C. § 1002(33)(C)(ii)(II).
In other words, the amendment extended the exemption to include plans maintained by so-called “principal-purpose organizations,” whose main job “is to fund or manage a benefit plan for the employees of churches or church affiliates.” Stapleton, 2017 WL 2407476, at *3; Compare 29 U.S.C. § 1002(32) (“governmental plan” definition does not include expansion to “affiliated” plans).
Lower Court Rulings
Stapleton is a consolidated appeal of three cases from the Northern District of Illinois, the District of New Jersey, and the Northern District of California, each of which concerned class actions asserting that the pension plans of certain church-related hospitals were out of compliance with ERISA and underfunded (assuming that ERISA applies). All three sets of plaintiffs (1) challenged the church plan exemption as it related to the hospitals, and (2) contended that to the extent that the exemption did apply, it violated the Establishments Clause. The plaintiffs prevailed in all three district courts on the first issue: that the church plan exemption did not apply to the hospital plans because the plans still had to be established by a church. The district courts rejected the plans’ argument that plans established by a principal-purpose organization qualified as church plans. The Seventh, Third, and Ninth Circuits upheld the district courts’ decisions.
Supreme Court Opinion
The issue before the Supreme Court was whether “church plan” included plans that were both established and maintained by a principal-purpose organization, or whether the plan must have originally been established by a church to qualify for the exemption. Stapleton, 2017 WL 2407476, at *4. The plaintiffs and the lower courts all interpreted the “church plan” amendment narrowly: because the statute used “established and maintained” when discussing churches, but only used “maintained” when introducing the concept of a principal-purpose organization, the statute should be read to allow a church plan to be maintained by a principal-purpose organization, but only if it was established by a church. The plans argued the opposite: the amendment was intended to include plans established or maintained by a principal-purpose organization within the definition of “church plan.”
The Court sided with the plans in an opinion that walked through statutory interpretation analysis. The amendment added “a new definitional phrase piggy-backing on the one already existing.” Id. at *5. Specifically, “‘church plan’ . . . initially meant only a plan established and maintained by a church. But [pursuant to the amendment] the original definitional phrase will now include another ‘a plan maintained by principal-purpose organization.’” Id. (internal quotations omitted). In other words, “a plan established and maintained by a church” now expressly includes “a plan maintained by a principal-purpose organization.” Because a plan maintained by a principal-purpose organization counts as a plan “established and maintained” by a church, there is no separate or additional requirement that the plan be first established by a church.
The statutory interpretation was based on canons of construction and did not depend on legislative history (which the Court found unhelpful), or on agency interpretations, both of which had been heavily discussed in the lower courts.
Open Issues
Stapleton left some big questions unanswered.
The Court expressly declined to express any views on whether the plans at issue “have the needed association with a church,” or whether the benefit committees “count as principal-purpose organizations.” Id. at *4 n.2. Indeed, Justice Sotomayor reluctantly concurred that the Court had reached the correct statutory interpretation but expressed concern that employees were not adequately protected. She warned that “[o]ther provisions . . . impact[ing] the scope of the ‘church plan’ exemption’” should be “construed . . . with a view toward effecting ERISA’s broad remedial purposes.” Id. at *11. Presumably, her concurrence can be used to argue for narrowly construing what “principal-purpose organizations” are as well as how closely an organization must be “affiliated” with a church.
In addition, the lower court decisions never reached the plaintiffs’ claim that the “church plan” exemption violates the Establishment Clause, leaving it unresolved.