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Religious Hospitals Win Pension Dispute at Supreme Court

By William Vogeler, Esq. on June 05, 2017 | Last updated on March 21, 2019

Church-affiliated hospitals are exempt from federal pension regulations, the U.S. Supreme Court ruled.

The unanimous Court said Congress established the law favoring church-affiliated organizations decades ago, exempting them from regulations of the Employee Retirement Income Security Act. The Court rejected employees' arguments to narrow the church plan exemption, saying it would have led to a "must be wrong" outcome.

"We conclude that the hospitals have the better of the argument," Justice Elena Kagan wrote in Advocate Health Care Network v. Stapleton.

Church Plans

Under ERISA, Congress said private employers must fully fund and insure their pensions -- with exceptions for churches and religious organizations. Congress later expanded a "church plan" to include affiliated organizations, like hospitals.

The Internal Revenue Service and the Labor Department have recognized that exemption for more than 30 years, but federal courts have recently read the law differently in three employee actions. Those cases were joined in the proceeding before the Supreme Court.

In upholding the traditional interpretation of the law, the Supreme Court reversed the decisions of the Third, Seventh and Ninth Circuits. The High Court said the exemption applies through the principal organization.

"Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a 'church plan,' regardless of who established it," the Court said.

Billion Dollar Shortage

If the Supreme Court had ruled otherwise, the plaintiffs alleged the hospitals would have had to cover a $4 billion shortfall in pension benefits. In one case, they said, Dignity Health would have had to pay $1.2 billion to make up a pension shortage.

After the ruling, hospital representatives said they will continue to administer their pensions for the benefit of more than 100,000 workers. Advocate Health Care, which operates 12 hospitals and some 250 health care facilities in Illinois, said the Court set a precedent for dozens of other cases pending throughout the country.

Plaintiffs' attorney Lynn Sarko of 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," she said.

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