Hospital Church Plan Challenges Still Face Long Road

Following oral arguments in March in three cases challenging health care organizations’ church plan status, the U.S. Supreme Court found plans maintained by principal-purpose organizations qualify as “church plans.”

However, it did not rule that the hospitals in these cases were principal-purpose organizations. Congress amended the church plan definition, adding the provision that: “A plan established and maintained for its employees … by a church … includes a plan maintained by an organization … the principal purpose … of which is the administration or funding of [such] plan … for the employees of a church …, if such organization is controlled by or associated with a church.”

Tess Gee, member in the ERISA & Employee Benefits Litigation practice at Miller & Chevalier in Washington, D.C., tells PLANADVISER, “These cases are not over at all for these hospitals.”

She says the next stage will be to determine if the hospital boards or plan committees fit within that principal-purpose definition. The plaintiffs will also have to show they are affiliated with a religious organization.

While these determinations are legal, in part, they are very much fact-based and will have to be litigated on a case-by-case basis, Gee adds. “[Justice Elena] Kagan noted twice in separate footnotes that these were issues expressly not being addressed by the court. They were assuming committees for these three plans were principal-purpose organizations, but the issue will still have to be decided before a lower court,” she points out.

In a statement by Karen Ferguson, director of the Pension Rights Center, she says, “The court merely ruled that a religiously-affiliated entity can establish a ‘church plan’ that is exempt from federal pension law. However, the Court noted that its ruling did not address a second requirement of the law, that an exempt church plan be maintained by an ‘organization’ that has administration of the plan as its principal purpose.” She notes that the hospitals in the cases heard by the court take the position that a pension plan’s internal retirement committee is the “organization” contemplated by federal pension law.

Gee says an additional takeaway is if a sponsor of a plan thinks it falls within the church plan definition, and has gotten a determination letter from Internal Revenue Service (IRS), it doesn’t really count for much. “The Supreme Court made it clear it was not giving deference to government analyses of decisions,” she points out. “The IRS letters do say committees are principal-purpose organizations, but this isn’t expected to be given much weight in lower courts; the courts will look beyond what has been decided in the past.”

Plan sponsors that believe their plan is exempt but have no IRS letter are no worse off, because the issues will be reviewed de novo,’ Gee adds. “Plan sponsors should review the entity that is maintaining the plan and go through what the church plan exemption requires with respect to the principal-purpose organization definition to see if it satisfies the definition.”