Does the Employment Retirement Income Security Act of 1974’s “church plan” exemption apply to a pension plan maintained by an otherwise-qualifying church-affiliated organization, regardless of whether a church initially established the plan?
This consolidated case provides the Supreme Court with the opportunity to resolve a conflict over the application of the “church plan” exemption of the Employee Retirement Income Security Act (“ERISA”). The parties disagree over whether the exemption applies to a pension plan maintained by a church-affiliated entity but not established by a church. Petitioners Advocate Health Care Network et al. (“Advocate”) argue that historical evidence and the statutory text establish that the exemption covers pension plans created by church agencies in addition to plans created by churches themselves. Advocate contends that a contrary interpretation would invite impermissible government interference with and discrimination between religious denominations. Maria Stapleton and fellow Respondents (“Stapleton”) contend that the language and purpose of the “church plan” exemption illustrate that it was not meant to cover a pension plan that was not created by a church. Stapleton also asserts that exempting the pension plans of church-affiliated entities from ERISA violates the Establishment Clause and puts thousands of church-agency employees at risk of losing their retirement benefits.
Questions as Framed for the Court by the Parties
The Employee Retirement Income Security Act of 1974 (“ERISA”) governs employers that offer pensions and other benefits to their employees. “Church plans” are exempt from ERISA’s coverage. 29 U.S.C. §§ 1002(33), 1003(b)(2). For over thirty years, the three federal agencies that administer and enforce ERISA—the Internal Revenue Service, the Department of Labor, and the Pension Benefit Guaranty Corporation—have interpreted the church plan exemption to include pension plans maintained by otherwise qualifying organizations that are associated with or controlled by a church, whether or not a church itself established the plan.
The question presented is whether ERISA’s church plan exemption applies so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan.
This case is a combination of appeals from United States Courts of Appeals for the Seventh, Ninth, and Third Circuits. The facts from each case are substantially similar.
Congress enacted the Employee Retirement Income Security Act (“ERISA”) in 1974 to protect employee retirement benefits. See Stapleton v. Advocate Health Care Network, 817 F.3d 517, 519. Before ERISA, there were several high-profile pension plan failures because employers were not required to provide insurance, ensure their plans were backed sufficiently, or honor their plans in the case of failure. See id. ERISA sought to address these issues by requiring employers to make certain disclosures, insure plans through the Pension Benefit Guaranty Corporation, and adhere to baseline funding requirements. See id. “Church plans,” however, have always been exempt from ERISA. See id.
Petitioner Advocate Health Care Network (“Advocate”) operates twelve hospitals and over 250 other health care centers in Illinois. See Stapleton, 817 F.3d at 520. Their health care network employs over 30,000 people and generates about $4.6 billion in revenue every year. See id. Advocate was formed in 1995 from the merger of Lutheran General Health Systems and Evangelical Health Systems. See id. While not owned by a church or religious organization, Advocate is affiliated contractually with both the Metropolitan Chicago Synod of the Evangelical Lutheran Church in America and the Illinois Conference of the United Church of Christ. See id. In its contracts with these two churches, Advocate affirms its “ministry in health care and the covenantal relationship” it shares with the churches. Id. at 521. Advocate does not maintain its pension plans in accordance with the requirements of ERISA because it believes it falls under ERISA’s church-plan exemption. See id.
Respondents, Maria Stapleton, Judith Lukas, Sharon Roberts, and Antoine Fox (collectively, “Stapleton”), are current or former employees of Advocate who claim benefits under Advocate pension plans. See Stapleton, 817 F.3d at 520. Stapleton contends that Advocate should not qualify for the church-plan exemption to ERISA because Advocate’s pension plan was not developed by a church. See id. Stapleton filed this suit as a proposed class action on behalf of all the employees and beneficiaries covered by Advocate’s pension plans. See id.
The Seventh Circuit found for Stapleton on March 17, 2016. See Brief for Petitioners, Advocate Health Care Network, et al. at 1. The court held that Advocate was not exempt from ERISA under the church-plan exemption and was therefore subject to significant penalties. See id. In substantially similar cases, the Third and Ninth Circuits similarly held that other pension plans maintained by church agencies did not fall within the church-plan exemption because the plans were not created by churches. See id. Petitioners from each of the three cases filed petitions for writs of certiorari in the Supreme Court, and the Supreme Court subsequently granted the petitions and combined the cases into one. See id.
STATUTORY TEXT AND PURPOSE
Advocate contends that the statutory text, history, and purpose of ERISA, as amended in 1980, demonstrate that ERISA provides an exemption for pension plans maintained by a church-affiliated organization, even where the church itself did not establish the plan. See Brief for Petitioners, Advocate Health Care Network, et al. at 21. According to Advocate, the plain, literal language of subsection (33)(C)(i) of 29 U.S.C. § 1002 (“the definitions statute”) proves that plans established and maintained by church-affiliated organizations receive an exemption from ERISA. See id. at 21–22. Advocate asserts that any other interpretation renders the definitions statute superfluous. See id. at 24–25. Moreover, Advocate argues that prior to ERISA’s 1980 amendments, the same subparagraph explicitly mandated churches to establish pension plans; thus, Advocate argues that differences in the statute’s current language and its original language confirm that church establishment of pension plans is not required for church-affiliated organizations to receive an exemption. See id. at 27.
Advocate also looks beyond the statute’s text to the statutory history and purpose of the 1980 ERISA amendment to support its claim. See Brief for Petitioners at 21. Advocate notes, first, that the 1980 amendment to ERISA was intended to address concerns of religious groups resulting from the IRS’s interpretation of ERISA’s 1974 exemption to exclude plans established by Catholic sisters. See id. at 33–35. Advocate claims that one purpose of the 1980 amendment was to prevent the IRS from deciding whether church-affiliated organizations carry out religious functions or comprise part of a church. See id. at 34–35. Advocate argues that the 1980 amendment to ERISA was also intended to place church-affiliated organizations and churches on equal ground. See id. at 38–39. Advocate explains that Congress was aware that distinguishing between church-affiliated organizations and churches resulted in discrimination between denominations, as decentralized religions were more likely than hierarchical religious groups to depend on church-affiliated organizations, and thus less likely to receive an ERISA exemption. See id. at 40–41. Further, Advocate focuses on the remarks of Senator Talmadge, a sponsor of the 1980 amendment, who pointed out that the 1974 requirement for church establishment of pension plans was at odds with the fact that pension boards frequently established pension plans. See id. Advocate maintains that because Congress was attempting to expand the church plan exemption, it does not make sense that Congress would simultaneously make it more difficult for church-affiliated organizations to obtain an exemption. See id. at 43. Advocate also notes that several of Congress’s subsequent laws assumed that church-affiliated organizations could establish pension plans on their own. See id. at 30. Advocate asserts that requiring churches to establish pension plans to receive the exemption is therefore at odds with the 1980 amendment’s history and purpose. See id. at 21.
Stapleton counters that the structure, text, and history of the church-plan exemption require that pension plans must be established by a church for the exemption to apply. See Brief for Respondents, Maria Stapleton, et al. at 17. According to Stapleton, Congress prohibited church-affiliated organizations from establishing exempt pension plans by deeming the employer of the employees of a church-affiliated organization to be the church under subsection (33)(C)(iii) of the definitions statute, because pension plans can be established only by the employer under the statute. See id. at 18–20. Under Stapleton’s analysis, because church-affiliated organizations cannot establish plans under the statute, their plans clearly cannot count as exempt church plans. See id. at 20. Stapleton also disputes Advocate’s claim that Stapleton’s construction renders the words “established and” in the definitions statute superfluous. See id. at 34–35.
Moreover, Stapleton disputes Advocate’s claim that the purpose of the 1980 amendment was to permit church-affiliated organizations to receive an ERISA exemption when a church did not initially establish the plan. See Brief for Respondents at 35. Stapleton argues that Congress, in fact, added subsections (33)(C)(ii)(II) and (C)(iii) to enable churches to continue providing pension plans to employees of church-affiliated organizations. See id. at 37. As evidence of this intent, Stapleton notes that under the original statute, churches would have lost the ability to provide benefits to employees of organizations affiliated with their churches in 1982. See id. at 44. Stapleton therefore contends that the point of the 1980 amendment was not to create a new loophole for church-affiliated organizations to receive an ERISA exemption or to eliminate the requirement that churches establish church plans. See id. at 20. Additionally, Stapleton argues that subsection (33)(C)(i) was not a “game-changing” provision, but rather a subsidiary provision created to address technical concerns about pension boards. See id. at 38–39. Further, Stapleton contends that permitting church-affiliated organizations to receive ERISA exemptions where a church did not initially establish the pension plan is at odds with the aim of the church-plan exemption itself, which was to prevent the “examination of books and records” of churches and protect the independence of churches in relation to the state. See id. at 57–58. According to Stapleton, the entanglement concern is a not an issue with church-affiliated organizations such as hospitals because, unlike churches, a review of church-affiliated organizations would not involve a review of activities confidential to the church. See id. Stapleton also disputes Advocate’s assertion that Congress’s subsequent laws eliminate the requirement that churches must establish church plans. See id. at 47–49.
While Advocate asserts that the statutory language is unambiguous, it argues in the alternative that if the text is ambiguous, the Internal Revenue Service (IRS), Pension Benefit Guaranty Corporation (PBGC), and the Department of Labor (DOL) should receive deference under Skidmore v. Swift & Co., which provides deference to agency interpretations based on their “power to persuade.” See Brief for Petitioners at 47. According to Advocate, Skidmore deference should apply because three different agencies each came to the same interpretation of a complex statute and applied the same interpretation hundreds of times for over thirty years throughout both Republican and Democratic administrations. See id. at 48. Advocate argues that the IRS’s interpretation as set forth in its 1982 general counsel memorandum should be found persuasive because it is reasoned and detailed. See id. Moreover, Advocate notes that the IRS provided its interpretation in its memorandum shortly after the 1980 amendment, which makes it more deserving of deference. See id. at 50. Lastly, Advocate maintains that the reliance interests on the agencies’ interpretations of the 1980 amendment are so great that the interpretations should be given deference. See id. at 51.
Stapleton, however, contends that the agencies’ interpretation of the statute is not entitled to Skidmore deference because the agencies have not thoroughly considered the interpretation of the portions of the statute at issue in this case. See Brief for Respondents at 51. Stapleton notes that the IRS general counsel memorandum did not consider numerous factors, including the potential harmful effects its decision could have on employees. See id. at 51–52. Stapleton also questions the legitimacy of the reliance interests cited by Advocate, noting, for instance, that the IRS memorandum specifically states that the document should not be relied upon or used as precedent. See id. at 53. In addition, Stapleton argues that if the church-affiliated organizations had to immediately comply with ERISA, they would not suffer serious consequences because essentially all businesses—including the competitors of the church-affiliated organizations—already must comply with ERISA. See id. at 54–55. Stapleton argues further that, if forced to comply with ERISA, church-affiliated organizations would be unlikely to face large financial penalties. See id.
Advocate asserts that, to avoid rendering the statute constitutionally suspect, ERISA must be interpreted to permit church-affiliated organizations to establish church plans. See Brief for Petitioners at 55. Advocate contends that if only churches could establish church plans, the statute would run afoul of the First Amendment, requiring the government to become too entangled with religion by determining whether an organization constitutes a church. See id. at 56–57. In addition, Advocate argues that Stapleton’s interpretation discriminates against decentralized religions. See id. at 58. According to Advocate, such discrimination is impermissible under the Establishment Clause. See id. Moreover, Advocate notes that the Court has continued to uphold statutes providing exemptions to religious organizations from either tax or regulatory burdens, as exemptions are different from subsidies. See id. at 60–61. Advocate argues that an exemption in this case would not result in impermissible third-party harms. See id. at 61.
On the other hand, Stapleton contends that the canon of constitutional avoidance requires its own reading—that ERISA’s church-plan exemption applies only when churches establish church plans—as Advocate’s reading casts serious doubts on the constitutionality of the statute. See Brief for Respondents at 56. While Stapleton concedes that the government can take steps to evade excessive entanglement with religion and can lessen government-created burdens on religion, Stapleton argues that neither is the case here. See id. at 56–58. Stapleton therefore maintains that the government’s exemption of church-affiliated organizations from ERISA, a generally applicable law, is unconstitutional under the Establishment Clause. See id. at 56. According to Stapleton, excessive government entanglement with religion would not result under its interpretation because an examination of church-affiliated organizations does not affect the confidentiality of the organization’s activities in the way that a review of a church itself does. See id. at 57–58. Stapleton also claims that both the federal and state governments often make distinctions between churches and church-affiliated organizations. See id. at 60. Moreover, Stapleton disputes Advocate’s claim that denominational discrimination would occur under its interpretation, noting that Advocate failed to name a single church or church-affiliated organization that would be discriminated against. See id. at 62. Additionally, Stapleton claims that Advocate’s reading would have significant third-party harms, including the employees of church-affiliated organizations losing ERISA protections, which makes Advocate’s reading impermissible under the Establishment Clause. See id. at 58–59.
RELIANCE AND COMPLIANCE COSTS
The Illinois Conference of The United Church of Christ and fellow amici (“Illinois Conference”) argue that church-agency pension plans should be exempt from ERISA, regardless of whether they were established by a church, because these organizations have relied on almost thirty-five years of rulings affirming such an exemption. See Brief of Amici Curiae Illinois Conference of the United Church of Christ, et al. (“Illinois Conference”), in Support of Petitioners at 24. According to the Illinois Conference, since ERISA’s inception, the IRS and DOL have consistently issued private letter rulings and opinions holding that the church-plan exemption applies to church-agency pension plans. See id. The Illinois Conference asserts that requiring compliance with ERISA at this stage would be unfair to the numerous organizations that have arranged their pension plans based on this guidance. See id. A group of Catholic health and social services organizations, in support of Advocate, further contend that requiring church-agencies to comply with ERISA would interfere with their charitable and religious missions. See Brief of Amici Curiae Church Defendant, in Support of Petitioners at 11. Alliance Defending Freedom and Thomas More Society (“Alliance Defending Freedom”) argue that the penalties for non-compliance and the future costs of compliance would cripple church-agencies, which would, in turn, deprive countless American communities of the critical services that these organizations provide. See Brief of Amici Curiae Alliance Defending Freedom and Thomas More Society (“Alliance Defending Freedom”), in Support of Petitioners at 11–12.
In response, Americans United for Separation of Church and State and fellow amici (“Americans United”) contend that requiring compliance with ERISA would not unduly burden church-agencies, but would instead level the playing field. See Brief of Amici Curiae Americans United for Separation of Church and State, et al. (“Americans United”), in Support of Respondents at 8. Americans United argues that church-affiliated hospitals and charities are unfairly advantaged by their current exemptions from ERISA, and that requiring compliance would simply mean they must fulfill the same obligations as secular organizations. See id. Furthermore, Pension Rights Center contends that the current expansive interpretation of the “church plan” exemption presents significant risks to the thousands of employees who work for church-affiliated groups. See Brief of Amicus Curiae Pension Rights Center, in Support of Respondents at 30. ERISA-exempt organizations do not have to insure or stand by their pension plans, which Americans United contends puts their employees at risk of losing access to the retirement benefits they have been promised. See Brief of Americans United at 11, 23. AARP and the AARP Foundation (collectively, “AARP”) point out that several church-agency pension plans have failed over the past decade and had devastating financial effects on employees. See Brief of Amici Curiae AARP and AARP Foundation, in Support of Respondents at 22–23.
DISCRIMINATION AND ENTANGLEMENT WITH RELIGION
Alliance Defending Freedom argues that pension plans created by church-affiliated organizations should be exempt from ERISA because demanding compliance would lead to impermissible government discrimination between religious denominations. See Brief of Alliance Defending Freedom at 10. Further, according to Church Alliance, holding that the “church plan” exemption only applies to plans created by churches would favor hierarchical denominations, where the central church is more likely to establish a pension plan, over decentralized denominations. See Brief of Amicus Curiae Church Alliance, in Support of Petitioners at 14. The General Conference of Seventh-Day Adventists (“Seventh-Day Adventists”) also argues that Advocate’s reading of the “church plan” exemption would favor denominations that place health care at the center of their religious mission. See Brief of Amicus Curiae The General Conference of Seventh-Day Adventists (“Seventh-Day Adventists”), in Support of Petitioners at 24. Further, the Catholic Health Association of the United States (“Catholic Health Association”) points out that expecting the central church, such as the Vatican, to establish a pension plan misunderstands the decentralized and individualized nature of many religious denominations. See Brief of Amicus Curiae The Catholic Health Association of the United States, in Support of Petitioners at 12. The Seventh-Day Adventists also assert that requiring church-agencies to comply with ERISA would lead to excessive government entanglement with religious doctrine. See Brief of Seventh-Day Adventists at 27. The Catholic Health Association adds that limiting the “church plan” exemption would lead to the government impermissibly questioning whether entities are “religious enough” to be considered churches. See Brief of Catholic Health Association at 19. Alliance Defending Freedom argues that this interference could eventually lead religious entities to alter their operations to conform to the government’s interpretation of religiosity. See Brief of Alliance Defending Freedom at 9.
Americans United asserts that Advocate’s concerns about discrimination against decentralized organizations overlook the fact that Congress specifically amended ERISA to permit the less burdensome plan administration schemes that tend to be more popular with decentralized denominations. See Brief of Americans United at 31–32. Americans United notes, for instance, that ERISA currently allows associations of churches and pension boards to maintain church plans. See id. The National Employment Lawyers Association (“NELA”) also claims that Advocate’s apprehensions about government entanglement with religion are overstated. See Brief of Amicus Curiae National Employment Lawyers Association (“NELA”), in Support of Respondents at 25–27. AARP and NELA argue that the purpose of the church-plan exemption was to prevent the government from searching through confidential church books and records, and that no such confidential records are involved when church-agencies—which are businesses, not churches—create their own pension plans. See Brief of AARP at 8; see also Brief of NELA at 25–26. Americans United and NELA also contend that the Petitioners’ concern about forcing churches to disclose confidential information to the government ignores the fact that these organizations must already disclose significant amounts of information to comply with federal programs like Medicaid. See Brief of Americans United at 8; see also Brief of NELA at 28. Furthermore, Americans United argues that the government is quite capable of deciding whether an entity qualifies as a church because there are already many requirements that apply differently to churches and other religious entities. See Brief of Americans United at 29. Americans United provides, as examples, various exemptions in the tax code that apply to churches but not to their affiliates. See id.
- Emma Green, The Supreme Court Case That Could Bankrupt Religious Schools and Hospitals, The Atlantic (Dec. 12, 2016).
- Greg Stohr, Religious Hospital Pension Clash Accepted by Supreme Court, Bloomberg Politics (Dec. 2, 2016).
- Mark Walsh, Supreme Court to Weigh Whether Pension Rules Apply to Church Schools, Hospitals, Education Week (Dec. 5, 2016).