A Supreme Court case about retirement benefits could hold surprising consequences for America's religious communities. In parsing the legal language, justices may need to redefine what counts as a church.
Advocate Health Care Network v. Stapleton centers on what types of employers are considered religious or at least religiously affiliated under Internal Revenue Service pension rules. The petitioners, a group of three religiously affiliated health care systems, argue that they are eligible to run church plan pensions, which are exempt from the Employee Retirement Income Security Act. An ERISA exemption means the hospitals don't have to report pension savings to the government or pay related premiums.
But these exemptions concern the health care systems' employees because their church pensions plans which they say are underfunded by around $4 billion aren't protected by the ERISA safety net. The workers who initiated the Supreme Court case assert that the church plan exemption shouldn't include pension plans that weren't established by a faith group, rejecting the IRS's interpretation of "church" as overly broad.
Monday's arguments included general observations on the difficulty of working with decades-old legal language, as well as a long exchange between Justice Stephen Breyer and one of the employees' lawyers about the problem with trying to establish a set definition of "church."
"The Catholic Church establishes the plan and (a group of nuns) maintains it. On your definition, is it in or out?" Breyer said.
"I thought the whole purpose (of ERISA amendments) was to avoid that inquiry," added Chief Justice John Roberts.
Advocate Health Care Network v. Stapleton has been in the media spotlight because of the billions of dollars the hospitals would need to spend to comply with ERISA if they lose. But the case also deserves attention for the potential legal ramifications for religiously affliated schools, charities and other organizations of limiting the definition of "church" in the eyes of the government, said Eric Rassbach, deputy general counsel at Becket, a religious liberty focused law firm that wrote an amicus brief in favor of the health care systems.
Religiously affiliated organizations like hospitals and schools shouldn't suffer simply because their main mission isn't to host worship services, he told the Deseret News, noting that "for many religious people, religion is not just something they do when they're inside a sanctuary."
ERISA's religion problem
ERISA, passed in 1974, sparked a religious outcry from the beginning. Faith groups protested the law's stark division of churches and church-related social programs, arguing that it drew a false boundary around worshipping communities.
"The original (law) said it has to be a plan established by a church for church employees, not employees of church-affiliated agencies like hospitals and schools," said Norman Stein, an expert on pension law at Drexel University in Philadelphia.
As religious leaders predicted, this distinction created legal headaches right away. The IRS, in considering requests for the church plan exemptions, had to decide what counted as a church, and their definition left out an order of nuns that ran a nursing home because the nuns didn't hold worship services, Stein said.
Policymakers were sympathetic to faith groups' complaints, and they amended ERISA in 1980 to expand the definition of church plans. Now, the term included any pensions "established and maintained" by a religious institution.
The IRS "interpreted the 1980 amendments as authorizing a church-related agency to maintain a church plan, so long as the agency's plan had an administrative committee comprised of a majority of members of the same faith as the affiliated church or if the agency's plan was 'controlled by a church,'" according to a 2014 newsletter from the American Bar Association.
The nursing home nuns got their church plan, and so did other religiously affiliated organizations, such as schools and hospitals.
"Since 1982, according to the hospitals' Supreme Court petition, (the IRS) has sent over 500 letters granting ERISA exemptions to organizations as diverse as the Princeton Theological Seminary and the Little Sisters of the Poor, an order of nuns," The Atlantic reported.
Some of these exemptions led employees relying on pension benefits to ask the same question that once plagued IRS officials: What counts as a church?
"Advocate Health Care Network, the largest health care provided in Illinois, is a nonprofit corporation that operates 12 hospitals and more than 250 health care facilities. Its operations are in all significant respects identical to the operations of its nonprofit (and, to a great degree, for-profit) competitors," write lawyers for the employees in Advocate Health Care Network v. Stapleton. "Advocate is not a church."
These employees argue that a stricter definition of church and, therefore, a smaller number of companies eligible for the ERISA exemption would ensure that employers can't take advantage of the church plan option in order to save money.
The original thinking behind the church plan exemption was that a church "probably wasn't going to let its employees suffer," Stein said.
Advocate Health Care Network v. Stapleton combines three separate cases involving ERISA's church plan exemption. The first, with the same name as the Supreme Court case, was argued before the 7th Circuit Court of Appeals in September 2015. The second, Saint Peter's Healthcare System v. Kaplan, was argued before the 3rd Circuit Court of Appeals in October 2015. And the third, Dignity Health v. Rollins, was argued before the 9th Circuit Court of Appeals in February 2016.
The lower and appellate courts sided with the employees in all three cases, forcing the appeal to the Supreme Court to resolve disputes between the lower court judges and the IRS over the interpretation of the ERISA exemption for church plans.
Media coverage of Advocate Health Care Network v. Stapleton, as well as the three circuit court rulings that preceded Monday's oral arguments, has focused on semantics.
Pension experts, journalists and judges have asked whether the 1980 ERISA amendments addressed pensions maintained by organizations eligible for the church-plan exemption, or only those that were first established by a church.
"Although the cases involve eye-catching sums of money, they turn on a seemingly banal question of statutory interpretation: must a pension plan be both 'established and maintained' by a qualifying church-connected entity in order to claim the legal exemption or is the exemption available to plans merely 'maintained' by a qualifying entity?" Bloomberg BNA reported in December.
However, as they revisit the details of the case, Supreme Court justices must acknowledge that their decision will also impact a broader discussion of the meaning of "church," Rassbach said.
"They need to be careful not to say churches are just buildings with doors that close during worship," he said, noting that doing so would hold consequences for other cases involving the freedom of worship and belief, such as those involving schools, charities and other organizations claiming protections under the Religious Freedom Restoration Act.
In its most narrow application, the Supreme Court ruling will affect around 30 pending lawsuits related to church pension plans, as well as the three health care systems being challenged in Advocate Health Care Network v. Stapleton. If the definition of "church plan" is tightened, many religiously affiliated schools, health care systems and other social service organizations will have to adjust their budgets and take a short-term financial hit in order to comply with ERISA.
Some legal experts have observed that the justices and other government officials may be able to moderate the fallout if the hospitals lose, because their pension plan decisions over the last few decades were based on official IRS letters. In other words, they might not have to make up the ERISA-related premiums missed over the years they had approved church plan exemptions.
"I think the IRS and, to the extent that it's relevant, the Department of Labor, will figure out ways to make this something that the hospitals can live with pretty easily," Stein said.
The Supreme Court will rule by June 30.
Advocate Health Care Network v. Stapleton centers on what types of employers are considered religious or at least religiously affiliated under Internal Revenue Service pension rules. The petitioners, a group of three religiously affiliated health care systems, argue that they are eligible to run church plan pensions, which are exempt from the Employee Retirement Income Security Act. An ERISA exemption means the hospitals don't have to report pension savings to the government or pay related premiums.
But these exemptions concern the health care systems' employees because their church pensions plans which they say are underfunded by around $4 billion aren't protected by the ERISA safety net. The workers who initiated the Supreme Court case assert that the church plan exemption shouldn't include pension plans that weren't established by a faith group, rejecting the IRS's interpretation of "church" as overly broad.
Monday's arguments included general observations on the difficulty of working with decades-old legal language, as well as a long exchange between Justice Stephen Breyer and one of the employees' lawyers about the problem with trying to establish a set definition of "church."
"The Catholic Church establishes the plan and (a group of nuns) maintains it. On your definition, is it in or out?" Breyer said.
"I thought the whole purpose (of ERISA amendments) was to avoid that inquiry," added Chief Justice John Roberts.
Advocate Health Care Network v. Stapleton has been in the media spotlight because of the billions of dollars the hospitals would need to spend to comply with ERISA if they lose. But the case also deserves attention for the potential legal ramifications for religiously affliated schools, charities and other organizations of limiting the definition of "church" in the eyes of the government, said Eric Rassbach, deputy general counsel at Becket, a religious liberty focused law firm that wrote an amicus brief in favor of the health care systems.
Religiously affiliated organizations like hospitals and schools shouldn't suffer simply because their main mission isn't to host worship services, he told the Deseret News, noting that "for many religious people, religion is not just something they do when they're inside a sanctuary."
ERISA's religion problem
ERISA, passed in 1974, sparked a religious outcry from the beginning. Faith groups protested the law's stark division of churches and church-related social programs, arguing that it drew a false boundary around worshipping communities.
"The original (law) said it has to be a plan established by a church for church employees, not employees of church-affiliated agencies like hospitals and schools," said Norman Stein, an expert on pension law at Drexel University in Philadelphia.
As religious leaders predicted, this distinction created legal headaches right away. The IRS, in considering requests for the church plan exemptions, had to decide what counted as a church, and their definition left out an order of nuns that ran a nursing home because the nuns didn't hold worship services, Stein said.
Policymakers were sympathetic to faith groups' complaints, and they amended ERISA in 1980 to expand the definition of church plans. Now, the term included any pensions "established and maintained" by a religious institution.
The IRS "interpreted the 1980 amendments as authorizing a church-related agency to maintain a church plan, so long as the agency's plan had an administrative committee comprised of a majority of members of the same faith as the affiliated church or if the agency's plan was 'controlled by a church,'" according to a 2014 newsletter from the American Bar Association.
The nursing home nuns got their church plan, and so did other religiously affiliated organizations, such as schools and hospitals.
"Since 1982, according to the hospitals' Supreme Court petition, (the IRS) has sent over 500 letters granting ERISA exemptions to organizations as diverse as the Princeton Theological Seminary and the Little Sisters of the Poor, an order of nuns," The Atlantic reported.
Some of these exemptions led employees relying on pension benefits to ask the same question that once plagued IRS officials: What counts as a church?
"Advocate Health Care Network, the largest health care provided in Illinois, is a nonprofit corporation that operates 12 hospitals and more than 250 health care facilities. Its operations are in all significant respects identical to the operations of its nonprofit (and, to a great degree, for-profit) competitors," write lawyers for the employees in Advocate Health Care Network v. Stapleton. "Advocate is not a church."
These employees argue that a stricter definition of church and, therefore, a smaller number of companies eligible for the ERISA exemption would ensure that employers can't take advantage of the church plan option in order to save money.
The original thinking behind the church plan exemption was that a church "probably wasn't going to let its employees suffer," Stein said.
Advocate Health Care Network v. Stapleton combines three separate cases involving ERISA's church plan exemption. The first, with the same name as the Supreme Court case, was argued before the 7th Circuit Court of Appeals in September 2015. The second, Saint Peter's Healthcare System v. Kaplan, was argued before the 3rd Circuit Court of Appeals in October 2015. And the third, Dignity Health v. Rollins, was argued before the 9th Circuit Court of Appeals in February 2016.
The lower and appellate courts sided with the employees in all three cases, forcing the appeal to the Supreme Court to resolve disputes between the lower court judges and the IRS over the interpretation of the ERISA exemption for church plans.
Media coverage of Advocate Health Care Network v. Stapleton, as well as the three circuit court rulings that preceded Monday's oral arguments, has focused on semantics.
Pension experts, journalists and judges have asked whether the 1980 ERISA amendments addressed pensions maintained by organizations eligible for the church-plan exemption, or only those that were first established by a church.
"Although the cases involve eye-catching sums of money, they turn on a seemingly banal question of statutory interpretation: must a pension plan be both 'established and maintained' by a qualifying church-connected entity in order to claim the legal exemption or is the exemption available to plans merely 'maintained' by a qualifying entity?" Bloomberg BNA reported in December.
However, as they revisit the details of the case, Supreme Court justices must acknowledge that their decision will also impact a broader discussion of the meaning of "church," Rassbach said.
"They need to be careful not to say churches are just buildings with doors that close during worship," he said, noting that doing so would hold consequences for other cases involving the freedom of worship and belief, such as those involving schools, charities and other organizations claiming protections under the Religious Freedom Restoration Act.
In its most narrow application, the Supreme Court ruling will affect around 30 pending lawsuits related to church pension plans, as well as the three health care systems being challenged in Advocate Health Care Network v. Stapleton. If the definition of "church plan" is tightened, many religiously affiliated schools, health care systems and other social service organizations will have to adjust their budgets and take a short-term financial hit in order to comply with ERISA.
Some legal experts have observed that the justices and other government officials may be able to moderate the fallout if the hospitals lose, because their pension plan decisions over the last few decades were based on official IRS letters. In other words, they might not have to make up the ERISA-related premiums missed over the years they had approved church plan exemptions.
"I think the IRS and, to the extent that it's relevant, the Department of Labor, will figure out ways to make this something that the hospitals can live with pretty easily," Stein said.
The Supreme Court will rule by June 30.