In an 8-0 decision, the Supreme Court unanimously held that ERISA’s exemption of “church plans” from its regulation of employee benefit plans extends to church-affiliated hospitals even if an actual church did not establish the plan.
The Petitioners, Advocate Health Care Network, Saint Peter’s Healthcare System, and Dignity Health, are church-affiliated nonprofits that run hospitals and other healthcare facilities. The health systems offer defined-benefit pension plans to their employees that were established by the systems themselves, not by an actual church, and are managed by internal employee benefits committees. The Respondents, current and former hospital employees, filed class actions alleging the health systems’ pensions plans did not fall within ERISA’s church plan exemption because they were not established by a church. Three district courts agreed with the employees, and the Third, Seventh, and Ninth Circuits affirmed.
The Employee Retirement Income Security Act of 1974 (ERISA) requires private employers offering pension plans to comply with various rules designed to ensure plan solvency and protect plan participants, but “church plans” have always been exempt from ERISA’s requirements. ERISA originally defined a “church plan” as “a plan established and maintained” by a church. Congress subsequently amended the statute to expand that definition in 1980, however, adding the provision that a “plan established and maintained for its employees by a church includes a plan maintained by an organization the principal purpose of which is the administration or funding of such plan for the employees of a church if such organization is controlled by or associated with a church.” Such organizations are referred to in the opinion as “principal-purpose organizations.”
The employees argued that even as amended, ERISA requires all “church plans” to be established by a church. They argued the amendment allowed principal-purpose organizations to maintain such plans in lieu of churches, but the provision left unaltered the requirement that churches themselves establish church plans. The Third Circuit concluded that ERISA’s plain text required a pension plan to be established by a church to qualify for the exemption, and that the amendment expanded only the definition of “maintained,” not “established.” The Seventh and Ninth Circuits relied on similar reasoning in their rulings in favor of the employees.
The Supreme Court disagreed. In an opinion authored by Justice Kagan, the Court found the amendment altered the original definitional phrase in that the definition now “includes” the phrase “a plan maintained by [a principal-purpose] organization.” The Court found the use of the word “include” is not literal, but means a different type of plan should receive an exemption from the type of plan described in the prior definition. In other words, the Court held, because Congress deemed the definition of “church plans” to include plans “maintained by” principal-purpose organizations, those plans are exempt from ERISA’s requirements. The Court found that had Congress wanted to alter only the maintenance requirement, it could have amended the statute to provide that “a plan maintained by a church includes a plan maintained by” a principal-purpose organization, removing the words “established and” from the first part of the sentence. Congress did not adopt such a ready alternative, the Court fond, and instead it added language that enables a plan “maintained” by a principal-purpose organization to substitute for a plan both “established” and “maintained” by a church.
The Court further found the employees’ construction conflicted with the “surplusage canon,” which is the presumption that each word Congress uses is intentional. The Court found the employees’ reading of the amendment at issue ignored the words “established and,” in conflict with the Court’s duty to give effect to every clause and word of a statute where possible.
Justice Sotomayor issued a concurring opinion, noting she was persuaded that the Court correctly interpreted the relevant statutory text, but was troubled by the outcome of the Court’s decision. Because the legislative history did not clearly endorse the Court’s decision, Justice Sotomayor argued, it was not at all clear that Congress would take the same action now with respect to some of the largest healthcare providers in the country, which frequently operate for-profit subsidiaries, employ thousands of employees, earn billions of dollars of revenue, and compete in the secular market with companies required to bear the cost of ERISA compliance. Justice Sotomayor found such organizations bear little resemblance to those Congress considered when enacting the 1980 amendment.
Justice Gorsuch did not participate in the consideration or decision of the case, which was argued before he joined the Court.
The case is Advocate Health Care Network v. Stapleton, No. 16-74.