By: Mark Casciari and Jules Levenson 

Seyfarth Synopsis: The Supreme Court has held unanimously that a 1980 amendment to ERISA means that a pension benefit plan need not be established by a church in order to be exempt from ERISA rules, including most importantly, its funding rules.  The decision shows that most courts misread ERISA, which is not that surprising, given the statute’s complexity.

On June 5, 2017, the Supreme Court unanimously held that a pension benefits plan need not be established by a church in order to qualify as a church plan exempt from ERISA funding and other rules, reversing three Courts of Appeal decisions to the contrary. Advocate Health Network v. Stapleton, No. 16-74 — S. Ct. — (June 5, 2017).

Stapleton involved pension plans established by nonprofit hospitals allegedly affiliated with churches.  The original ERISA definition of church plan required that the plan be “established and maintained . . . by a church,” but a 1980 amendment defined the phrase “established and maintained . . . by a church” to include plans maintained by certain affiliate organizations.  The question before the Court was whether a plan qualified as a church plan simply by virtue of its being maintained by a qualifying affiliate organization (referred to by the Court as a “principal purpose organization”) — the position taken by the hospitals — or whether a church must first have established the plan — the position taken by the plaintiffs.

In an opinion sure to delight enthusiasts of textualism, Justice Kagan, writing for a unanimous court (absent Justice Gorsuch), sided with the hospitals. The Court concluded that Congress’s amendment to ERISA brought plans maintained by principal purpose organizations into the exempt category of plans “established and maintained . . . by a church,” even if those plans were not in fact initially established by church. The Court also noted that that the IRS, DOL, and PBGC had long interpreted ERISA to exempt these plans.

This decision is a significant victory for church-affiliated healthcare organizations that have not already settled for tens and even hundreds of millions of dollars with the plaintiff attorneys and the classes they represent. The settlements attempted to bridge the funding shortfalls if those plans were subject to stringent ERISA funding rules. The decision thus rewards those employers who took a hard line against Courts of Appeals decisions.  It also is yet another lesson that one can never be too careful interpreting ERISA, and sometimes the correct interpretation runs counter to many lower court decisions and the admonitions of strident plaintiff counsel.

We have written previously about how this case might affect ERISA litigation.  We thought the Court might comment on the U.S. Constitution’s “concrete injury” precondition to suit in federal court under ERISA, in the context of an ERISA violation that is limited to technical statutory compliance.  The Court did not, however.  Instead, the Court offered a lesson on how to interpret a highly complex statute.