Benefit Plans Established by Church Affiliates Are Exempt From ERISA
On June 5, 2017, the United States Supreme Court held that employee benefit plans established by church-affiliated organizations are church plans pursuant to the church plan exemption under the Employee Retirement Income Security Act of 1974 (“ERISA”).
Retirement plans maintained by church-affiliated organizations are covered under ERISA’s church plan definition. However, until recently, it was unclear whether a church-affiliated organization could establish an exempt church plan. In several lawsuits, participants, in retirement plans maintained by church-affiliated hospitals, claimed that the plans did not qualify for the exemption because the retirement plans were not established by a church. As such, the retirement plans should be subject to ERISA’s vesting, reporting and disclosure, funding, trust, and fiduciary rules. The Third, Seventh, and Ninth Circuits agreed with the participants and ruled that the hospital plans were subject to ERISA. The Supreme Court consolidated the cases and reversed those rulings.
The Supreme Court focused on the definition of a church plan under ERISA, which defines the term “church plan” for purposes of the exemption. The church plan definition states that “[a] plan established and maintained for its employees . . . by a church . . . 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.” §1002(33)(C)(i).The Court reasoned that if a plan established and maintained by a church is exempt, and a plan established and maintained by a church includes a plan maintained by a principal-purpose organization, then a plan maintained by a principal-purpose organization is an exempt church plan.
The participants, unsuccessfully, argued that only the term maintained was modified by the amendment. However, the Supreme Court held that the legislative history did not support the participants claim. The Supreme Court noted that if Congress intended the exemption to apply only to plans initially established by churches, Congress could have specified that a plan maintained, rather than “established and maintained”, by a church includes a plan maintained by a principal-purpose organization. Accordingly, the Supreme Court ruled that the legislative history supported the opposite interpretation. For this reason, the Supreme Court held that the exemption applies to a plan maintained by a principal-purpose organization, regardless of which entity established the plan. The Supreme Court’s holding is consistent with the position that the Internal Revenue Service and Department of Labor have taken regarding retirement plans of church-affiliated organizations.
If you have any questions, please contact a Foster Swift Employee Benefits attorney.
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