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Church-affiliated hospitals exempt from federal laws governing pension benefits, Supreme Court rules

ERISA laws do not apply to church-established health systems, even if the plans were established and maintained by the hospitals, Justices say.

Susan Morse, Senior Editor

The Supreme Court on Monday overturned an appeals court opinion and ruled that religiously-affiliated hospitals do not have to comply with federal laws protecting pension benefits for workers.

The Justices, except for Justice Neil Gorsuch who did not take part in consideration of the case, said the health systems are exempt, even though the pension plans were established by the hospitals and are managed internally, according to Justice Elena Kagan who wrote the opinion.

Judge Sonia Sotomayor filed a concurring opinion though said she was troubled by the outcome.

"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 said. It is not at all clear that Congress would take the same action today, "with respect to some of the largest health-care providers in the country. Despite their relationship to churches, organizations such as petitioners operate for-profit subsidiaries."

The 2016 case pitted Advocate Health Care Network, Saint Peter's Healthcare System and Dignity Health against employees and former employees for those systems who originally filed a class action lawsuit.

The Employer Retirement Income Security Act of 1974 obligates private employers to offer pension plans that adhere to rules to ensure plan solvency and protects the employees. Church plans have long been exempt from these regulations.

The class action lawsuit said the hospitals did not meet the church exemption status from ERISA because they were not established by a church.

The question for the Justices was whether a church must have originally established such a plan for it to qualify for an exemption,  Kagan said.

The three relevant federal agencies responsible for administering ERISA are the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation.

[Also: Pension funds linger, even make comeback, among healthcare providers]

ERISA was amended in 1980 after many religious groups protested that the Internal Revenue Service was attempting to define what is and what is not a church.

Congress then categorized that all groups associated with church activities would receive comparable treatment, Kagan said.

"Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a 'church plan,' regardless of who established it," Kagan said.

Tess Gee, a member in the ERISA and employee benefits litigation practice at Miller & Chevalier said a Supreme Court decision would not end the controversy.

Had the hospitals lost, they faced funding contributions of possibly billions of dollars a year plus civil penalties for failing to comply with ERISA's reporting and disclosure requirements, Gee said prior to the SCOTUS ruling.

"Even if the Court decides in their favor, the hospitals will have to establish that they are a PPO, as their counsel conceded at the argument, to qualify for the church plan exemption," she said.

Stuart Lark, a partner at Sherman & Howard who represents religious organizations and who submitted amicus briefs in the Hobby Lobby case said, "The Court's decision is a welcome development for all religious organizations seeking to exercise and express their beliefs in context where regulatory requirements may run contrary to such beliefs."

[Also: Dignity Health, Catholic Health Initiatives explore merger]

The Supreme Court case was Advocate Health Care Networks versus Maria Stapleton, Saint Peter's Healthcare System versus Laurence Kaplan and Dignity Health versus Starla Rollins.

 

Twitter: @SusanJMorse

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