For 35 years, faith-based hospitals have been exempt from federal pension regulations imposed on their secular competitors that include hefty insurance premiums to safeguard employees' retirement benefits. But the U.S. Supreme Court will soon weigh in on whether they'll keep that competitive advantage.
The high court last week considered three cases that question whether faith-based health systems—ranging from large providers like Dignity Health and Advocate Health Care to one-hospital systems like St. Peter's Healthcare System of New Jersey—should be exempt from the Employee Retirement Income Security Act. The court's decision, which will be released by late June, could cost faith-based organizations billions of dollars and affect the retirement benefits of more than a million workers across the country.
“Just from plan asset size, several of my clients between them have over $10 billion in plan assets,” said Howard Shapiro, a partner at the law firm Proskauer Rose and an ERISA expert. “This is a major issue for these religiously affiliated hospitals.”
Under ERISA, all private employers except faith-based organizations must fully fund their pensions, pay premiums to the Pension Benefit Guaranty Corp. and comply with the law's disclosure requirements. In the 1980s, Congress expanded the church plan exemption to include the pension plans of church-affiliated organizations after the Internal Revenue Service denied an exemption to Little Sisters of the Poor in the 1970s.
But are the hospitals really arms of their founding churches? Three federal appeals courts have said they're not, nixing long-standing IRS, PBGC and Labor Department policies for going beyond what Congress intended with the church plan exemption and providing companies a regulatory loophole if they have seemingly tangential connections to churches.
“I don't think anyone would say there's no connection between a church agency and a church,” said Tess Gee, an ERISA attorney at Miller & Chevalier. “But is a church agency a church? I think for a lot of legal reasons it's not.”
While churches receive special treatment under the law to protect their religious rights, Gee noted that church agencies are treated differently under tax law and other regulations.
Some of the eight justices on the Supreme Court bench expressed similar skepticism during oral arguments, even though the federal government has asked the court to keep the ERISA exemption in place.