"Church Plans" and ERISA
A “church plan” is generally exempt from the requirements of the Employee Retirement Income Security Act (“ERISA”) unless the plan sponsor affirmatively elects ERISA coverage.
A “church plan” is a plan established and maintained by a church or a convention or association of churches that is exempt from tax under Section 501 of the Internal Revenue Code (the “Code”). ERISA § 3(33)(A). A plan is not a Church Plan if (i) it is established and maintained primarily for the benefit of employees employed in connection with unrelated trades or businesses (i.e., trades that do not further a church’s tax-exempt religious purposes) or (ii) a substantial number of individuals covered by the plan are not (a) employees (or their beneficiaries) of the church; (b) duly ordained ministers of a church; (c) employees of a charitable tax-exempt organization associated with or controlled by a church; or (d) if the plan is still receiving contributions on behalf of persons who have separated from the church, persons who have separated from the church within the last five years.
THE ERISA SECTION 3(33)(C) EXTENSION:
ERISA Section 3(33)(C) extends the “church plan” exemption to plans covering employees of entities “controlled by” or “associated with” churches in general. This extension of the exemption is usually used by church-associated or -controlled hospitals and schools.
Specifically, ERISA Section 3(33)(C) provides:
A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.
Although the majority of court cases, IRS private letter rulings, and Department of Labor advisory opinions have opined that a church plan may be both established and maintained by entities “controlled by” or “associated with” churches, recent court cases have brought this interpretation into doubt.
In Kaplan v. Saint Peter’s Healthcare System and Rollins v. Dignity Health, federal courts have signaled a change in statutory interpretation. Civil Action No. 13-2941 (D. N.J. Mar. 31, 2014); Case No. 13-1450 (N.D. Cal. Dec. 12, 2013). Both cases focused on the statutory language, concluding that the statue requires a church plan to be “established” by a church or convention or association of churches, and that it merely permits such a plan to be “maintained” by a church associated or controlled organization. See ERISA § 3(33)(A) & (C). Thus, under this rationale, a church plan cannot be “established” by a church associated or controlled organization.
However, in Overall v. Ascension Health, Case No. 13-11396 (E.D. Mich. May 9, 2014), the court, after lengthy analysis of the two cases above, stated “a church plan may include a plan that meets the requirements of section (C). Section (C) requires that the plan maintained by an organization that is either (1) controlled by or (2) associated with a church or convention of churches. To find otherwise would render section (C) meaningless.” The court focused on the portion of section (C) stating that “A plan established and maintained . . . by a church includes a plan [meeting the requirements of section (C)(I).” Thus, the Overall court found that section (C) removes the “established by” requirement so long as all of the requirements of (C)(I) were met.
“ASSOCIATED WITH” OR “CONTROLLED BY”
Under ERISA Section 3(33), an organization is “associated with” a church “if it shares common religious bonds and convictions with that church.”
The “controlled by” requirement is satisfied if a majority of the organization’s officers or directors are appointed by a church's governing board or by officials of a church or association or convention of churches.
Kennerly Montgomery is a general practice law firm that has provided legal advice to clients for almost 100 years. KM attorneys practice in a variety of areas, representing municipal clients, including local governments, agencies and public utilities.
Bill Mason, Kathy Aslinger, Brittany Brent Smith, Ashley Trotto and Zack Gardner practice extensively in employee benefits law, which includes design, documentation, administration, audit, litigation, termination and qualification of employee health and welfare and pension plans for public, tax-exempt and private employers. The Firm sponsors various prototype retirement plans and prepares both interim amendments and discretionary amendments for all plan types as well as counsels with fiduciaries on ERISA and Federal & state law obligations. They represent clients before various agencies regulating employee benefits.
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©2014 Kennerly, Montgomery & Finley, P.C. This publication is intended for general information purposes only and does not constitute legal advice or a legal opinion and is not an adequate substitute for the advice of legal counsel.
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