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    ORLANDO, FL -- June 7, 2017 -- Would you like an English or sentence-structure lesson? If so, you should read the U.S. Supreme Court’s decision confirming that plans maintained by church-affiliated hospital systems are exempt from ERISA.

    Justice Kagan parsed through word meaning, definitional phrases and even a logic problem to analyze Congress’ intent in defining a church plan.  Legislative materials provided little guidance, so the analysis was solely on the specific wording in the statute. ERISA initially defined a church plan as a plan established and maintained by a church. A few years later, an amendment added that a plan established and maintained by a church includes a plan maintained by an organization controlled by a church whose principal purpose is the administration of retirement benefits.

    Plaintiffs – participants in plans maintained by national, church-affiliated hospital systems – argued that the plans were not established by the church itself and, therefore, did not meet the church plan definition.  If true, the plans would be subject to ERISA and offer the participants protection that promised benefits would be paid. The church affiliated hospital systems, called “principal-purpose organizations” in the decision, argued that the mere maintenance of the plan by the principal-purpose organization was sufficient for the church plan definition. Adding to the suspense was that for decades the IRS, DOL and PBGC had confirmed that plans of principal-purpose organizations were exempt from ERISA as church plans.

    When the lower courts gave no deference to those governmental agencies’ determinations, the issue was destined to go to the U.S. Supreme Court.  Justice Kagan looked at the two provisions with the presumption that each word Congress uses is there for a reason. She found that the added provision stated a plan “established and maintained” by a church included a plan maintained by a principal-purpose organization. If Congress intended Plaintiffs’ argument, then Congress could have easily left out the “established and” in the first part of that provision. Because Congress used those specific terms, it must have meant that the added language enabled a plan maintained by a principal-purpose organization to substitute for a plan both established and maintained by a church.

    Therefore, a plan maintained by a principal-purpose organization qualifies as a church plan regardless of who establishes it. Plans maintained by national, church-affiliated hospital systems continue to be exempt from ERISA.  Good news for the hospital systems, but Justice Sotomayor noted the decision – although correct – leaves thousands of employees without protection if the principal-purpose organizations are unable to meet their plan obligations.  In addition, the exempt status provides a cost advantage for these organizations in relation to private employers who would be required to comply with ERISA. Justice Sotomayor ends by stating that Congress is the proper forum for dealing with these issues.

    Brian K. Furgala
    GrayRobinson, P.A.
    301 East Pine Street
    Suite 1400
    Orlando, Florida 32801
    P: 407-843-8880
    F: 407-244-5690


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