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Recent Litigation Addresses the Benefit Plans of Religious Organizations

June 13, 2016

The retirement and health plans of churches and certain other religious organizations are entitled to specific exemptions under federal benefits laws.  These include an exemption from the fiduciary, funding, and other requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).  They also include an exemption or accommodation from the contraceptive coverage mandate of the Patient Protection and Affordable Care Act of 2010 (“PPACA”).  In this client alert, we survey recent litigation and settlements addressing these exemptions and discuss their implications for religious organizations that sponsor employee benefit plans.

I. The ERISA Exemption:  What is a Church Plan?

A long-standing exemption under ERISA applies to a church plan which is defined, in relevant part, as a plan established and maintained for its employees by a church or by a convention or association of churches.  A topic of recurring litigation has been whether this means that a church plan must, in fact, be established by a church or if a church-affiliated organization may establish such plan.

The answer is not clear.  The Third and Seventh Circuits have recently construed the exemption to apply only to plans established by churches.  These courts declined to apply deference to IRS private letter rulings stating that the exemption covers plans established by church-affiliated hospitals. They also differed from the Fourth Circuit which previously held that a plan established by a corporation associated with a church could qualify as a church plan.  Other cases addressing the scope of the exemption are currently pending in the Ninth and Tenth Circuits.  The split among the circuit courts suggests that this is an issue the Supreme Court may ultimately have to resolve.

In the meantime, some organizations are choosing to pursue settlement rather than continued litigation.  The terms of the settlements vary.  Last month, Saint Francis Hospital and Medical Center agreed to make a series of funding contributions to a defined benefit pension plan.  In 2015, Ascension Health agreed to provide certain participant rights such as summary plan descriptions and claims procedures.  Although these are protections similar to those required under ERISA, the settlements do not concede that ERISA applies to the plans in question as a matter of law.

II. The PPACA Exemption:  Must the Organization Notify the Government?

Churches are exempt under PPACA from providing contraceptive coverage as part of the health plans they sponsor. Certain other religious organizations may qualify for an accommodation, but it is not automatic.  Under federal regulations, such organizations must submit a form either to their insurer or to the federal government stating that they object on religious grounds to providing contraceptive coverage.  In the recent Supreme Court case of Zubik v. Burwell, this notice requirement was challenged as  substantially burdening the exercise of the organizations’ religion in violation of the Religious Freedom Restoration Act of 1993 (“RFRA”).

Following oral argument, the Court requested and received confirmation from all parties that contraceptive coverage could be provided through the organizations’ insurance companies without any notice from the organizations themselves.  (The Court did not address how self-insured plans might provide such coverage.)  Therefore, the Court declined to rule on the RFRA claim and instead remanded the question to the Third Circuit to identify an approach that accommodates the organizations’ religious exercise while at the same time ensures that their employees receive the required coverage.  In light of Zubik, the Court has also remanded challenges to the accommodation for reconsideration by the Second, Fifth, Sixth, Seventh, and Eighth Circuits.  Pending the outcomes on remand, the government may not impose any taxes or penalties for failure to provide the relevant notice.

III. Implications for Religious Organizations

As the litigation discussed above makes clear, the application of the ERISA and PPACA exemptions and accommodations to certain religious organizations remains unsettled.  Organizations can nonetheless take certain steps while awaiting further legal clarification, including the following:

  • Determine the applicable existing legal authority. This may entail analysis specific to a particular jurisdiction.

  • Evaluate the litigation and financial risks associated with the asserted legal positions.

  • Consider alternatives or potential defenses to protracted litigation which may harm the plan and the sponsoring organization.

This client alert has discussed litigation addressing issues of concern to religious organizations that sponsor employee benefit plans.  For more information about the rules applicable to such organizations or other issues concerning your benefit plans in general, please contact Joanne C. Youn at jyoun@capdale.com or at 202.862.7855.

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