U.S. Supreme Court Rules that ERISA's "Church Plan" Exception Applies to Religiously Affiliated Organizations

On June 5, 2017, the Supreme Court of the United States unanimously ruled (with Justice Gorsuch abstaining) that religiously affiliated hospitals need not have been established by churches in order to qualify for ERISA’s “church plan” exception. The Court’s decision in Advocate Health Care Network v. Stapleton et. al, Nos. 16-74, 16-86 and 16-258, (June 5, 2017) reverses decisions from the U.S. Courts of Appeals for the Third, Seventh and Ninth Circuits.

Employee retirement and health plans established and maintained by churches are generally exempt from ERISA. At issue in these cases was ERISA Section 3(33)(C)(i):

  • “A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, 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 a convention or association of churches.”

The circuit courts had ruled that in order for a church-affiliated plan to be exempt from ERISA, the plan must initially be established by the church, meaning the plan could not be established by the church-affiliated entity.

The Court disagreed, ruling that “a plan maintained by a principal-purpose organization qualifies as a ‘church plan,’ regardless of who established it.” For these purposes, a principal-purpose organization is one whose principal purpose or function is the administration or funding of a welfare or retirement plan for the benefit of employees of a church (or church-affiliated organization) and that it is controlled by or associated with a church.

With this decision, plans established and maintained by principle-purpose organizations escape additional ERISA compliance requirements such as funding, vesting, Form 5500 filing and the distribution of SARs and SPDs.

Advocate Health Care Network et al. v. Stapleton et al.