Supreme Court: No ERISA Protection for “Church-Affiliated” Retirement Plans Run by Hospitals, Health Care Facilities

By Edwin P. Morrow III, J.D., LL.M. (Tax), CFP®, CM&AA®

On June 5, 2017, the Supreme Court issued a unanimous ruling in Advocate Health Care Network v. Stapleton concerning whether ERISA applies to church affiliated non-profits that run hospitals and health care facilities: click here to view.

It may erode certain retirement plan protections for employees of many hospitals and health care facilities loosely connected to churches, though the Court did not decide other arguments that may yet ultimately apply ERISA to them.

The Employee Retirement Income Security Act of 1974 (ERISA) generally obligates private employers offering pension plans to adhere to an array of rules designed to ensure plan solvency and protect plan participants. “[C]hurch plan[s],” however, are exempt from those regulations and this “includes a plan maintained by an organization . . . the principal purpose . . . of which is the administration or funding of [such] plan . . . for the employees of a church . . . , if such organization is controlled by or associated with a church.” The legal question at issue was whether such language could extend even to large loosely church affiliated non-profits (“principal-purpose organizations”), or whether the plan must be established by a church. The question does not just concern small employers – the named plaintiff (there were three consolidated appeals) owned 12 hospitals and 250 health care facilities. Three appeals courts had sided with the employees in finding that such plans did not qualify under the exemption and were therefore subject to ERISA, but the Supreme Court reversed, holding that “under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a “church plan,” regardless of who established it.”

Thus, the protection that ERISA normally extends to employee plans may not extend to them. Echoing the concerns in Justice Sotomayor’s concurring opinion, I believe the court probably correctly decided the case based on statutory interpretation, but whether this is wise public policy is another issue. Should one mega health care organization retirement plan be subject to ERISA and the same size and nearly identical organization that happens to be loosely affiliated to a church not be? These include very large employers with billions in revenues.

Despite the recent decision, the issue is not completely settled for large health care organizations and their employees. As the Court noted in its second footnote: “The employees alternatively argued in the District Courts that the hospitals’ pension plans are not “church plans” because the hospitals do not have the needed association with a church and because, even if they do, their internal benefits committees do not count as principal-purpose organizations. Those issues are not before us, and nothing we say in this opinion expresses a view of how they should be resolved.”

From an estate and asset protection planning perspective, this decision and the uncertainty it creates puts employees, including many physicians, who are covered by such plans at a disadvantage. Even aside from protecting the economic viability, ERISA provides outstanding creditor protection (as confirmed in the prior Supreme Court case of Guidry) – with federal law preempting and providing protections no matter what various state laws provide.

However, non-ERISA qualified retirement plans, which pursuant to this decision now possibly includes many thousands of employees of church affiliated hospitals and health care facilities, would be covered for such purposes under state law rather than ERISA. State statutes that cover such plans often have worse creditor protection than federal ERISA law would provide, and surprisingly, state protections for such plans are often much worse than for IRAs. This case gives employees in such plans a very good reason to rollover such plans to an IRA upon retirement or change of employment.  Even though such assets may be protected under federal bankruptcy law, this requires filing and qualifying for a bankruptcy discharge, which is not always an option.

Other options to protect such accounts may include rolling over into a truly ERISA protected qualified retirement plan, if an employee is eligible, or even setting up an ERISA protected retirement plan if the employee has enough earned income elsewhere.  However, unfortunately there is another exception to ERISA creditor protection for plans that only cover owners and their spouses without any other employees. Other asset protection options for such assets might include withdrawals to fund an ILIT or other irrevocable trust, funding a 529 plan or using LLCs.  These options may all be dependent somewhat on state law exemptions and options for protection.


Edwin P. Morrow IIIEdwin Morrow, J.D., LL.M., MBA, CFP®, RFC® is a board certified specialist in estate planning and trust law through the Ohio State Bar Association. He is currently the Director of Wealth Transfer and Tax Strategies for the Family Wealth Advisory Group at Key Private Bank. Ed works with family wealth financial advisory and trust teams nationwide, assisting with in-depth reviews of high net worth clients’ estate, trust, asset protection and tax planning. Prior to joining Key Bank in 2005, Ed was in private law practice in Cincinnati, Ohio, concentrating in taxation, probate, estate and business planning.

Ed can be reached by phone (937) 285-5343 or by e-mail at or


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