The U.S. Supreme Court on Monday unanimously issued a decision that revives a decades-old practice exempting faith-based hospitals from federal pension regulations.
The eight justices ruled that faith-based hospitals' pension plans qualify for the so-called "church plan" exemption from the Employee Retirement Income Security Act. Hospitals and health systems ranging from Dignity Health and Advocate Health Care down to one-hospital systems such as St. Peter's Healthcare System in New Brunswick, N.J., will not have to pay premiums to the Pension Benefit Guaranty Corp. or fully fund their pensions to meet ERISA requirements.
Dignity, Advocate, St. Peter's and approximately three-dozen other faith-based health systems have faced lawsuits from current and former employees alleging they are not entitled to the church-plan exemption. Three federal appeals courts ruled against Dignity, Advocate and St. Peter's, leading to the high court showdown.
If the Supreme Court had narrowed the church plan exemption, Advocate, Dignity and St. Peter's could have faced a $4 billion shortfall in their pension funding, according to a client alert from the law firm Mayer Brown.
While the employees alleged that only church-established pension plans warrant the ERISA exemption, the eight justices determined that wasn't Congress' intention when it amended ERISA in the 1980s.
"We conclude that the hospitals have the better of the argument," Justice Elena Kagan wrote for the court.
Lynn Sarko, an attorney for the plaintiffs and partner at Keller Rohrback, said they will continue to fight for ERISA benefits for faith-based health systems' employees.
"The Supreme Court's decision foreclosed one legal argument but we will continue advancing others that shed light on the excessively broad interpretation the hospitals seek," Sarko said.
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.
Justice Neil Gorsuch did not participate in the decision because he wasn't yet on the bench when the court heard the case earlier this year.
Kagan noted that the Internal Revenue Service, Labor Department and the PBGC have sent hundreds of letters to faith-based health systems over the last 35 years upholding their ERISA exemptions.
The high court determined if Congress didn't intend for faith-based organizations to receive the ERISA exemption, it could have narrowed the requirements.
Advocate on Monday praised the ruling and said it would continue to operate its pension plan in the best interest of its workers.
"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.
Although the justices unanimously upheld the exemption, Justice Sonia Sotomayor said she was "troubled" by the outcome. Sotomayor agreed in her concurring opinion that the ERISA amendment's text supported the justices' decision, but she is concerned that "scores" of employees will be left without federal pension protections, and large faith-based corporations don't have to comply with the same regulations as their secular competitors.
"To the extent that Congress acted to exempt plans established by orders of Catholic Sisters, it is not at all clear that Congress would take the same action today with respect to some of the largest healthcare providers in the country," Sotomayor wrote. "These organizations thus bear little resemblance to those Congress considered when enacting the 1980 amendment to the church plan definition. This current reality might prompt Congress to take a different path."
Advocate, Dignity and St. Peter's all maintained during the litigation that their pension plans were well-funded.