Feds Defend Pension Law’s Religious Exemption

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By Jacklyn Wille

The federal government is defending a religious legal exemption that allows churches and church-connected entities to avoid fully funding their pension plans.

In a memorandum filed Dec. 11 in federal court, the government argued that the Employee Retirement Income Security Act’s “church plan” provision is constitutional because it has a secular legislative purpose and neither advances nor hinders religion. This is the first time the government has publicly commented on the constitutionality of the exemption in the four years since it’s become a controversial issue driving dozens of ERISA class actions.

The memorandum, which was filed in connection with a pending lawsuit against Mercy Health, comes six months after the U.S. Supreme Court ruled that ERISA allows hospitals like Mercy Health to treat their pension plans as church plans exempt from the statute’s funding, disclosure, and insurance requirements. That decision was rooted in an analysis of the statutory text and didn’t consider the argument advanced by some hospital workers that the exemption violates the First Amendment’s Establishment Clause.

The government previously defended the exemption on nonconstitutional grounds in January, when it filed a brief with the Supreme Court defending the long-standing practice of the Internal Revenue Service and other agencies to allow church-connected hospitals to take advantage of ERISA’s church plan exemption.

Prior to the Supreme Court’s ruling, dozens of religiously affiliated hospitals were sued over their pension plans. Workers said the plans became severely underfunded because they were treated as ERISA-exempt church plans despite failing to qualify for the statutory exemption. Several hospitals agreed to multimillion-dollar settlements, including Washington-based Providence Health & Services ($352 million), Connecticut-based Saint Francis Hospital ($107 million), Trinity Health Corp. ($75 million), Ascension Health ($8 million), and Alabama-based Baptist Health System Inc. ($11 million).

Constitutional Arguments

The church plan exemption advances the secular legislative purpose of minimizing governmental interference in the decision-making processes of religious bodies, the government said in its Dec. 11 memorandum. The exemption also helps avoid disparities in treatment between churches with a hierarchical structure—like the Catholic Church—and other types of churches.

The government also rejected the idea that the exemption advances religion. The exemption “simply spares church plans from regulatory requirements,” as opposed to providing them with financial support or sponsorship, the government said.

The government said it had no opinion on whether the Mercy Health plan in question satisfied the statutory requirements to qualify as a church plan under ERISA.

The memorandum was filed in the U.S. District Court for the Eastern District of Missouri by Acting Assistant Attorney General Chad A. Readler, Assistant Director of Federal Programs Judry L. Subar, and Department of Justice trial attorneys Emily S. Newton and Bradley H. Cohen.

The case is Sanzone v. Mercy Health , E.D. Mo., No. 4:16-cv-00923-CDP, government’s memorandum in support of constitutionality 12/11/17 .

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

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