ERISA-exempt church plans and the “little guy”

Last updated on: March 29, 2017 at 9:13 pm by Jane the Actuary

ERISA-exempt church plans and the “little guy” 2017-03-29T21:13:09-06:00 Jane the Actuary

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How should the Supreme Court make its decisions? Should they focus on helping the “little guy” seek justice against Big Whatevers? Or should they, y’know, aim to interpret the law?

Pension plans made their way back into the news — well, the business section, anyway, this week with Supreme Court arguments over what constitutes a “church plan”; these are pension plans which are not obliged to follow ERISA and subsequent (e.g., PPA) regulations on funding, government reporting, disclosures to employees, PBGC premiums, etc. The most obvious type of church plan would be a pension plan established by, well, a church directly, say, the pension plan offered by an archdiocese for its employees (e.g., the parish staff, schoolteachers, etc.). And it stands to reason that, in the same way as the state can’t interfere with hiring and firing decisions at a church, they exempted church plans from these regulations as well.

Now, as it happens, not just churches but also organizations which are “church-affiliated” are able to apply for classification as a church plan, and, since significant numbers of American hospitals are church-affiliated, there are significant numbers of “church plans” among those hospitals.

As it happens, I had experience with those church plans back when I was a junior actuary; as I recall, they tended to make pension contributions based on one iteration of the federal funding requirements, but did not attempt to fund to the more burdensome level of more recent updates to federal pension funding legislation.

But after a longstanding consensus that ERISA and its follow-up amendments, which specifically but confusingly addressed the question of “affiliated” organizations’ eligibility, permitted hospitals to classify their pension plans as church plans, there have been a number of lawsuits filed, starting in 2013, demanding that this exemption be removed, and those plans be required to fund based on the usual statutory requirements, and participate in the PBGC fund. See this background article in The Atlantic, from last December, and this list of cases from the Pension Rights Center, which has been supporting these lawsuits.

Earlier this month, the Chicago Tribune reported that Holy Cross Hospital settled its case, and agreed to pay out $4 million to pension plan participants to top up their benefits; this was that usual sort of “continuing to fight in court isn’t cost-effective” decision.

And this past week another case, that of Advocate Health Care, a Lutheran doctors and hospital corporation, has been before the Supreme Court, as described, again, in the Chicago Tribune, and, with more attention paid to the oral arguments, by the SCOTUS blog. Their conclusion:

In the end, then, it seems quite likely that the affiliated organizations will retain their exemptions. The justices might not like the way the amendment is written, but they do not seem likely to reject the IRS’s reading of it.

Now, if you read the SCOTUS blog, a lot of it will seem very arcane, with each of the “factions” pressing the lawyers on the specifics of definitions, potential penalties, and so forth. There are no tales of woe of poor pensioners whose retirement was ruined because the money they thought they’d get, wasn’t available to them. Sotomayor and Kagan were not pontificating about the impacts on retirees but questioning about the meaning of a given paragraph in the law.

And that’s as it should be. It might be obvious, but this seems to me to be a good example of the fact that the Supreme Court is fundamentally not charged with “helping the little guy” but with interpreting the law as written. And if Congress wished now, or at any time in the past, to limit the applicability of church plans, they could now, or could have in the past, passed a law to that effect.

(You might object that Congress can’t be relied on due to gridlock, but I’ll tell you that, if there’s one thing that Congress seems to be able to do even in the midst of the gridlockiest of situations, it’s passing pension legislation; the combination of increasing PBGC premiums and loosening funding requirements, or, more specifically, granting waivers when current economic conditions increase funding requirements too sharply, seems to be a particular favorite right now. Even in the nuttiest of situations, Congress could add a bipartisan amendment restricting the access to church plans to entities that are explicitly churchy, or employ less than X people or have revenues of less than $Y million dollars, if they had wished to.)

Of course, the case of church plans in actual churches is something that could increasingly become an issue, though I’m now removed from this professionally; I could easily imagine that, back at the time that ERISA was first passed in 1974, churches were thought of as, similar to governments, as institutions which would be around forever, and had no real risk of bankruptcy as a private company would, so that there was no real harm in permitting churches to offer their pensions on a pay-as-you-go basis if they wished. Now, of course, we know that it is entirely possible for churches to shrink in size, and to risk legacy costs in the same way as school districts are dealing with. But that’s a whole ‘nother story.

Image: the Supreme Court building, from Wikipedia.

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