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Religiously affiliated hospitals are exempt from ERISA.

Byline: Barry Rosen

Federal legislation known as ERISA protects participants in pension plans through a number of safeguards, including minimum funding and vesting requirements, insuring of plan benefits, reporting and disclosure requirements and the imposition of fiduciary responsibilities. However, Congress also exempted certain types of plans from ERISA's requirements, such as plans established and maintained by federal, state, local or tribal governments or established and maintained by churches.<br />Advocate Health v. Stapleton<br />At issue in the U.S. Supreme Court in Advocate Health v. Stapleton (2017) was whether a plan established by a church-affiliated hospital (not by a church itself) qualifies as a "church plan" exempt from ERISA.<br />Advocate Health Care Network is a health system operating 12 hospitals and more than 250 other inpatient and outpatient facilities in Illinois. AHCN employs approximately 33,000 individuals and has annual revenue of $4.6 billion.<br />Former and current employees of AHCN alleged the company's pension plan did not fall within ERISA's church plan exemption and thus was subject to the law's numerous requirements. Of particular importance, they alleged AHCN breached its fiduciary duty and harmed participants by failing to fund the plan at levels required by ERISA. AHCN did not fund, insure, or administer the plan in compliance with the requirements of ERISA because it had relied on the church plan exemption.<br />The controversy was part of a four-year wave of litigation involving more than two dozen religiously affiliated hospitals, which together comprise a pension funding shortfall of approximately $4 billion. Several lower courts handling these cases, including the U.S. District Court in Maryland, have ruled plans established by church-affiliated agencies may qualify for the ERISA church plan exemption. Other lower courts have sided with employees, deciding that, although religiously affiliated organizations could maintain an exempt church plan, an exempt church plan must have been established by a church.<br />Unanimous decision<br />In a unanimous decision, the Supreme Court held a plan maintained by a religiously affiliated organization qualifies as a church plan, regardless of who established it.<br />While Justice Sonia Sotomayor agreed with that conclusion, she expressed concern about its implications, stating the Court may be denying ERISA protections to "scores of employees" who work for employers that "look and operate much like secular businesses."<br />Future litigation<br />The Court's decision means that religiously affiliated hospitals like AHCN may be able to avoid funding their plans in accordance with ERISA's minimum levels.<br />Future litigation will likely focus on whether institutions are sufficiently controlled by or affiliated with a church. It is expected that these inquiries will center on hospitals' governance structures and the make-up of plans' internal benefit committees.<br />For example, subsequent to Stapleton, the 5th U.S. Circuit Court of Appeals concluded Catholic Health Initiatives, which operates 92 hospitals and numerous other health care facilities in 18 states, is sufficiently affiliated with the Catholic Church to satisfy the exemption's requirement that its retirement plan has been "established" by a church.<br />That court also went on to address an important issue left unanswered in Stapleton. Besides having to be "established" by a church, ERISA's exemption also requires the plan to be maintained by a church-affiliated entity whose principal purpose is to provide employee benefits (if not maintained by the church itself). Some have argued that this "principal purpose" language requires a separate church-affiliated entity to "maintain" an exempt church plan, as opposed to the plan being maintained by a religiously-affiliated health system's HR Department or by a pension subcommittee of such a health system.<br />In the CHI case, the court concluded a pension subcommittee of CHI is an acceptable organization "maintaining" the plan. This means religiously-affiliated hospitals do not have to establish separate "principal purpose" entities to administer their plans to secure ERISA's church plan exemption.<br />The Supreme Court's decision in Stapleton could also have important ramifications under ERISA preemption rules, rules that prevent states from enforcing laws that contradict ERISA. For example, since ERISA preemption is not available for plans exempt from ERISA, states could respond to Stapleton by passing legislation allowing participants in church plans to bring suits in state court based on underfunding or fiduciary breach. In fact, subsequent to Stapleton, complaints in several pending church plan cases have been amended to add state law claims.<br />Barry F. Rosen is chairman and CEO of Gordon Feinblatt LLC and heads the firm's Health Care Practice Group. He can be reached at 410-576-4224 or brosen@gfrlaw.com. Chase A. Tweel is an associate in the Firm's Health Care and Employee Benefits Practice Groups and can be reached at 410-576-4080 or ctweel@gfrlaw.com.

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Publication:Daily Record (Baltimore, MD)
Date:May 29, 2018
Words:787
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