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ERISA Exemption Debate Goes to the US Supreme Court

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Washington, DC: The ongoing debate over whether, or not an exemption under the Employee Retirement Security Act (ERISA, as amended 1974) applies to non-profit hospitals reached a pivotal juncture in late March when arguments were made before the justices of the US Supreme Court. At stake is the current practice of not-for-profit hospitals with a church affiliation, applying the ERISA exemption according to a long-standing position in the accounting and actuarial world that a church affiliation meets the criteria for the ERISA exemption.

However, employees who have been fighting an ERISA lawsuit against the hospitals and their affiliates, hold that the ERISA exemption only applies if the pension plan was established by an actual church, rather than by association through a church affiliation. After recent federal circuit court rulings went against Advocate Health Care Network, Saint Peter’s Health Care System and Dignity Health, the cases were appealed to the US Supreme Court.

Dignity Health operates a handful of hospitals and healthcare facilities in the state of California.

ERISA sets out various standards with regard to the management of pension and benefits plans, with established funding minimums, insurance protection and disclosure requirements. Congress allowed an exemption from the rigors of ERISA for not-for-profits. However the language of the exemption and the various interpretations of the original intent of Congress have been debated for some time.

Not-for-profit hospitals and health care facilities with a church affiliation have long interpreted the ERISA exemption as continuing to be available to them so long as a church affiliation is maintained. Employees of those facilities however are not happy with the status quo that their benefit plans are not shielded by ERISA protection, and have been arguing that a church affiliation is not what Congress originally intended.

Employees maintain an ERISA exemption is only available if a benefits plan is established and maintained by a church.

In sum, the issue comes down to an argument by the hospitals – including those run by Dignity Health in California – that the principal purpose organization running their benefit plans have “common religious bonds and convictions” required to qualify for the religious exemption.

This, in deference to arguments by their employees that Congress intended for a strict separation between church and state, and only a church qualified for the exemption.

The hospitals have some expert advocates for their cause, including the deputy solicitor general for the US Department of Justice. The DOJ is supporting the hospitals’ cause as amicus curiae. Were the Supreme Court justices to find for the employees and interpret the ERISA exemption as only available to a benefits plan established and maintained by a church, hospitals would have to completely revise accounting practices and management of the plans in order to comply with ERISA – a costly, and labor-intensive shift.

The latter was the view of the Third Circuit in October 2015 and the Seventh Circuit in March of last year – both ruling that the ERISA exemption is only available to church-established benefits plans. The hospitals argue that in their view, such a qualifier was not the original intent of Congress going forward. What’s more, the hospitals suggest that such a restrictive qualifier contravenes previous rulings by the Fourth and Eighth Circuits which determined a church association was sufficient to qualify for the exemption.

The hospitals, in the ERISA lawsuit also contend that such a position is also supported – and has been for some time – by the DOJ and the Internal Revenue Service (IRS), which hold that church affiliation or association is sufficient.

Their employees argue otherwise.

The cases are Advocate Health Care Network et al. v. Maria Stapleton et al., Case No. 16-74; Saint Peter’s Healthcare System et. al.  v. Laurence Kaplan, Case No. 16-86; and Dignity Health et. al. v. Starla Rollins, Case No. 16-258, in the Supreme Court of the United States.

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