Supreme Court Rules in Favor of Faith-Based Hospitals’ Exemption from ERISA

In June, the U.S. Supreme Court unanimously ruled that faith-based hospitals’ pension plans qualify for the “church plan” exemption from the Employee Retirement Income Security Act (ERISA), which means they will not have to pay premiums to the Pension Benefit Guaranty Corp. or fully fund their pensions to meet ERISA requirements. The ruling came after three federal appeals courts ruled against dozens of other faith-based health systems that faced lawsuits from current and former employees alleging they are not entitled to the church-plan exemption.

Under ERISA, all private employers except faith-based organizations must fully fund their pensions, pay premiums to the Pension Benefit Guaranty Corp. and comply with the law’s disclosure requirements. In the 1980s, Congress expanded the church plan exemption to include the pension plans of church-affiliated organizations. According to the Supreme Court justices, Congress’s intention when it amended ERISA in the 1980s was not to extend the exemption to only church-established pension plans.

While all eight justices unanimously upheld the exemption (Justice Neil Gorsuch was not yet on the bench when the case was heard), Justice Sonia Sotomayor said she was “troubled” by the outcome because she is concerned that many employees will be left without federal pension protections, and large faith-based corporations don’t have to comply with the same regulations as their secular competitors.