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Justices Consider Whether Pension Rules Apply to Church Schools, Hospitals

Hundreds of religious schools and their employees are watching with intense interest a case the U.S. Supreme Court took up on Monday about whether certain church-affiliated institutions—hospitals, soup kitchens, and daycare centers in addition to schools and colleges—are subject to the main federal law that regulates private pension plans.

A wide range of church-affiliated groups, including schools and education associations, has told the high court 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.

But three recent federal appeals court decisions have held that ERISA's exemption for church pension plans applies only if a church "established" the pension plan. The rulings have prompted dozens of class-action lawsuits against religious organizations, including schools, that have relied on the church plan exemption for decades. 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.

In Advocate Health Care Network v. Stapleton (Case No. 16-74) and related cases, the Supreme Court is taking up appeals from three religiously affiliated hospitals, but its decision will have implications for schools, colleges, and many other church affiliates.

"There is a litany of charitable ministries affiliated with but not necessarily established by the parish or diocese, ranging from hospitals and healthcare clinics, to soup kitchens and homeless shelters, to parochial schools, colleges, and universities, and countless others," says a friend-of-the-court brief in the case in support of the religious hospitals filed by the U.S. Conference of Catholic Bishops, the National Catholic Educational Association, and other Roman Catholic groups. 

If the high court were to affirm the appeals courts' rulings, that limiting of the ERISA exemption "would impact not just Catholic hospitals, but Catholic charities of all shapes and sizes," the brief says.

Meanwhile, many Protestant churches and organizations joined a brief, also in support of the hospitals, that points out that their churches are not as hierarchical as the Catholic Church, so even if the court rules that the retirement plans of Catholic church affiliates are held to be established by the larger church, it would be hard for most Protestant churches to meet that because they are chiefly based on local congregations.

"The notion that there is some umbrella church for the Jews and the Protestants is just—it's fantastical that they could possibly establish these plans," Lisa S. Blatt, a Washington lawyer representing the church-affiliated hospitals, told the justices during oral arguments on March 27. Her clients in the case are hospital networks affiliated with the Evangelical Lutheran Church in America, the United Church of Christ, and the Catholic Church.

Blatt said that Congress had amended ERISA in 1980 in response to a 1977 ruling by the Internal Revenue Service that "two orders of Catholic nuns were not the church when they were caring for the sick" and their pension plan was not exempt as a church plan.

The language added by the 1980 amendment was intended to keep the federal government from having to decide what constituted a church, she said. And since the early 1980s, the three federal agencies charged with interpreting ERISA—the IRS, Department of Labor, and the Pension Benefit Guaranty Corporation—have agreed that such plans of church affiliates qualify for ERISA's "church plan" exemption, she said.

"The government's consistent view, over three decades, has generated enormous reliance interests," Blatt said, meaning that church affiliates have relied on that view as they made pension decisions during that time period.

James A. Feldman, a Washington lawyer representing workers and retirees' who have challenged the hospital systems' church exemptions under ERISA, argued in his brief and at oral argument that large hospital networks in the case are run like big business enterprises.

"No one would mistake [the three] hospital systems for churches," Feldman said in a brief. Their operations are in all significant respects identical to the operations of their nonprofit (and, to a great degree, for-profit) competitors. They impose no religious test or requirements on their patients or employees. There is no indication that churches provide them with financial support or guarantee their debts."

The explosion of unregulated and uninsured "church plans" has led to threat to pensions and even failures, resulting in reduced benefits for pensioners, Feldman argued.

Asked during oral argument by Chief Justice John G. Roberts Jr. about the long-held view of the IRS, the Labor Department, and the Pension Benefit Guaranty Corp. that the church-affiliated plans were exempt from ERISA, Feldman said, "They took this view in the early 1980s at a time when they were facing one or two [such plans]."

"I'm not sure they knew at the time when they started down this road what it was going to lead to in terms of the hundreds of hospitals and other businesses that were going to be able to just deprive their employees of ERISA benefits," Feldman said.

The Pension Rights Center, a Philadelphia-based workers' rights organization that filed a friend-of-the-court brief on the workers' side in the high court case, cites at least one school-related case in which pension benefits were reduced in a church plan for school workers. 

In 2016, the school system of the Roman Catholic Archdiocese of San Juan, Puerto Rico, terminated its pension plan, then retroactively claimed a church plan exemption so it did not have to follow obligations under ERISA, according to a lawsuit filed on behalf of the workers.

"Unless the decisions below are upheld, not only will the pensions of [hospital] participants and those of current and future retirees in hundreds of other plans sponsored by church-related hospitals, nursing homes, schools, and community centers that have received church plan rulings be at risk, but countless others also will be in danger of losing their hard-earned and long-promised benefits," says the Pension Rights Center brief.

The justices had tough questions for both sides in the hospitals' case before them.

Justice Sonia Sotomayor asked Blatt, "Do you think Congress had in mind [exempting] corporations that are essentially like every other corporation except they're not for profit?  I mean, these hospitals, some of them, like Dignity, the Catholic Church has disavowed any formal affiliation with it."

She was referring to information in court papers that in 2011, when the Dignity network was formed, the Roman Catholic archbishop of San Francisco said publicly that "the name of the new health system [i.e., Dignity] will not suggest a direct association with the Catholic Church or its apostolic works" and that "the restructured corporation will not be recognized as Catholic."

Blatt said Dignity was established by orders of nuns and has some six orders of nuns running its "mission integrity committee."

Justice Anthony M. Kennedy suggested to Feldman that church affiliates have been "proceeding in good faith" for more than 30 years "with the assurance of the IRS that what they were doing was lawful."

"We do know that the climate, the culture, the economic problem after 30 years was that many of these [church-affiliated] associations, which proceeded in good faith based on the IRS, were at risk of tremendous liability" if they were suddenly found subject to ERISA's requirements, Kennedy said. 

A decision in the case is expected by late June.

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