Published: Tue, June 06, 2017
U.S. | By Eddie Scott

Justices side with religious hospitals in pension dispute

Justices side with religious hospitals in pension dispute

In a unanimous decision, the court said religious hospitals don't have to comply with federal laws that protect pension plans.

In November 2016, former St. James' employees learned their pension wasn't covered by federal protections and it could run out of money in mere months.

Hospital workers argued that it's unfair that these religious employers, who operate hospitals as for-profit subsidiaries that compete with secular hospitals, get a pass on pension laws created to protect employees.

The justices sided with three church-affiliated nonprofit hospital systems being sued for underfunding their employee pension plans.

"The court's ruling sets a precedent for the dozens of other cases being heard at varying jurisdictions throughout the country", the health system said in a statement.

Following oral arguments in March in the cases of Advocate Health Care Network v. Stapleton, St. Peter's Healthcare System v. Kaplan, and Dignity Health v. Rollins, the U.S. Supreme Court found plans maintained by principal-purpose organizations qualified as "church plans".

Writing for the court, Justice Elena Kagan said the law's religious exemption applies to plans whether they were established by churches themselves or organizations affiliated with the churches.

Kagan noted that Congress was motivated by Internal Revenue Service letter rulings in the last 1970s that pension plans established by orders of Roman Catholic nuns did not qualify as church plans because the religious orders were not carrying out the church's religious functions.

The hospitals - two with Catholic affiliation and one with Lutheran ties - had argued that their pensions are "church plans" that are exempt from the law and have been treated as such for decades by federal officials. "We agree with the Supreme Court's decisive interpretation of the law and will continue to operate our plan in the best interest of our associates to ensure they have a successful transition to retirement".

Employees who were challenging the exemption for some such church affiliates argued that the 1980 language did not cover principal-purpose organizations that were not established by a church.

Advocate runs 12 hospitals and 250 other health care facilities in IL. If the employees were correct - that Congress meant to burden affiliate-maintained plans with the same establishment requirement as church-maintained plans - you would expect Congress to have said that for purposes of the church exemption the reference to "a plan maintained by a church includes a plan established and maintained by [an affiliate]".

"The decision avoids deciding whether large non-profit hospital systems meet the requirements for the exemption", Handorf said in the statement.

Tess Gee, a member in the ERISA and employee benefits litigation practice at Miller & Chevalier said a Supreme Court decision would not end the controversy.

Americans United was joined in filing the brief by the People For the American Way Foundation and the American Civil Liberties Union and its affiliates in Illinois, New Jersey and Northern California (the states where the health systems are based).

The plaintiffs were seeking retroactive penalties for past violations of ERISA, which the hospitals said could add up to hundreds of millions or billions of dollars.

First Liberty Institute filed a friend-of-the-court brief on behalf of the Council for Christian Colleges & Universities, Cardinal Newman Society, Belmont Abbey College, Colorado Christian University, John Paul the Great Catholic University, and other religious organizations explaining why the Supreme Court should affirm the religious exemption provided to ERISA.

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