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Supreme Court to Weigh Whether Pension Rules Apply to Church Schools, Hospitals

The U.S. Supreme Court has agreed to decide whether religious hospitals and schools must adhere to the federal law that regulates most private pension plans.

The justices on Dec. 2 granted appeals from three hospital organizations affiliated with churches, but its decision could also affect religious schools, day-care centers, and other religious affiliates.

One of the appeals says that it has been settled law for more than 30 years that the pension plans of qualifying church-affiliated organizations are exempt from the Employee Retirement Income Security Act of 1974, the federal law that governs employers that offer pensions to their workers.

The three federal agencies charged with interpreting ERISA—the Internal Revenue Service, Department of Labor, and the Pension Benefit Guaranty Corporation—have agreed that such plans qualify for ERISA's "church plan" exemption, which Congress adopted to avoid excessive entanglement between the government and churches. Since 1983, the three federal agencies have issued numerous opinions reaffirming their view, says the appeal filed by Advocate Health Care Network, a hospital system affiliated with the Evangelical Lutheran Church and the United Church of Christ.

"Countless nonprofit religious hospitals, orphanages, schools, day-care centers, and old-age homes have structured their pension plans in reliance on these agencies' views and on the until-now-unanimous lower court decisions confirming their exempt status," says the appeal.

But three recent federal appeals court decisions have held that ERISA's church plan exemption applies only if a church "established" the pension plan.

"It is hard to overstate the burden and havoc these ... decisions have created," says the appeal in Advocate Health Care Network v. Stapleton (Case No. 16-74). 

The decisions have prompted dozens of class-action lawsuits against religious organizations that have relied on the church plan exemption for decades, Advocate Health says. The lawsuits seek billions of dollars in retroactive liability for noncompliance with ERISA's recordkeeping and other procedural requirements, from which church plans are exempt.

The case "affects hundreds, probably thousands, of nonprofit religious employers and millions of employees," Advocate Health says.

The other appeals accepted by the court were from two Roman Catholic hospital groups. In the Advocate Health case as well as Saint Peter's Healthcare System v. Kaplan (No. 16-86) and Dignity Health v. Rollins (No. 16-258), the health concerns sought review of rulings by the U.S. Court of Appeals for the 3rd Circuit, in Philadelphia, the U.S. Court of Appeals for the 7th Circuit, in Chicago, and the U.S. Court of Appeals for the 9th Circuit, in San Francisco, that church plans exempted under ERISA must be established by churches.

The status quo was challenged in a series of class actions filed on behalf of various ex-workers and pension holders of the hospital organizations. The suits seek declarations that the challenged plans were not church plans, and seeking damages and civil penalties. The suits also alleged that some of the plans were underfunded.

In briefs filed in response to the appeals, the challengers to Advocate, Dignity, and Saint Peter's hospital systems argue that "giant healthcare corporations [like those three] must provide ERISA-mandated minimum protection and insurance for their employees' pension plans, just like [the church-affiliated companies'] competitors must do."

It is not clear whether the law firms behind the class actions have targeted any religious schools in their recent lawsuits. But some religious rights advocates argue that the Supreme Court's decision in the cases up for review could affect the ERISA exemption for religious schools nationwide.

"Synagogues, mosques, churches, and other houses of worship should not be forced to decide between ceasing to provide retirement benefits and subjecting themselves to extensive government regulation of their internal operations," says a friend-of-the-court brief filed by the Alliance Defending Freedom, a religious rights group. "These same considerations apply to the agencies of churches, synagogues, mosques, and other houses of worship."

The three cases, which were consolidated, will be argued sometime early next year, with a decision expected by late June.

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