June 6, 2017

Supreme Court upholds pension exemption for religiously affiliated health systems

Daily Briefing

The Supreme Court on Monday ruled that religiously affiliated health care providers can be exempt from certain federal pension rules.

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Background

Workers at three religiously affiliated health systems had filed separate lawsuits arguing that their employers wrongfully claimed exemptions to the Employee Retirement Income Security Act (ERISA), and as a result had underfunded their pension plans. The health systems—Dignity Health, Advocate Health Care Network, and Saint Peter's Healthcare System—argued that their religious affiliations qualify them for ERISA exemptions.

Appeals courts in the 3rd Circuit, 7th Circuit, and 9th Circuit had ruled against the health systems. The health systems all appealed to the Supreme Court, and the high court last year stayed the 9th Circuit's ruling against Dignity Health, stopping it from taking effect as the high court decided whether to hear the case. The Supreme Court in December 2016 said it would take up the three cases in one consolidated case, and in March heard oral arguments in the case.

Ruling details

The high court on Monday in a unanimous 8-0 decision ruled that pensions provided by religiously affiliated health care providers are exempt from ERISA. Justice Neil Gorsuch, who joined the court after oral arguments in the case occurred, did not take part in the decision.

Justice Elena Kagan in the court's majority opinion wrote that ERISA's religious exemption applies to pension plans regardless of whether they were established by actual churches or by groups affiliated with churches. She noted that multiple federal agencies over the past 35 years have sent hundreds of letters to religiously affiliated health systems upholding their ERISA exemptions, adding that Congress should have narrowed the requirements for an exemption if lawmakers had not intended for the exemption to apply to such plans.

Justice Sonia Sotomayor in a concurring opinion wrote that she agreed with the high court's ruling based on ERISA's test, but that she was "troubled" by the exemption because some religiously affiliated groups operate for-profit subsidiaries. Sotomayor called on Congress to address the issue, writing that "scores of employees—who work for organizations that look and operate much like secular businesses—potentially might be denied ERISA's protections."

Implications

The ruling has significant consequences for hospital workers' retirement benefits because a pension plan subject to ERISA has to follow strict funding requirements and provide government-backed insurance, while exempt pension plans have more flexibility and can alter workers' benefits based on the employer's financial state.

Advocate on Monday hailed the ruling and said it will continue to operate its pension under the exemption. The company in a statement added, "The court's ruling sets a precedent for the dozens of other cases being heard at varying jurisdictions throughout the country" (Chung, Reuters, 6/5; Teichert, Modern Healthcare, 6/5; AP/CBS News, 6/5; Stohr, Bloomberg, 6/5).

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