“Church Plan” Need Not Have Been Established By A Church

“Church Plan” Need Not Have Been Established By A Church

Church-affiliated organizations have been anxiously awaiting a decision from the U.S. Supreme Court on the requirements for “church plan” status. On June 5, 2017, the Court issued its decision, holding that a plan maintained by an organization that is affiliated with a church can, in fact, meet the definition of a “church plan,” without regard to the nature of the entity that originally established the plan.

By way of background, the federal Employee Retirement Income Security Act (ERISA) generally requires employers to adhere to a myriad of rules designed to protect the rights of participants in employee benefit plans maintained by the employers. These rules include minimum participation and vesting requirements, pension funding standards (generally applicable to defined benefit pension plans), and reporting and disclosure requirements (including the filing of annual Form 5500 returns).

Church plans have been exempt from ERISA’s requirements since its inception. In recent years, however, some stakeholders (in particular, employees of large church-affiliated hospitals) seeking the protections of ERISA had begun to question whether their pension plans truly fell within the definition of “church plan,” as their employers had long maintained. After lower courts agreed with the employees in several cases, the Supreme Court stepped in to ultimately decide the question.

In ruling in favor of the employers, the Court observed that although ERISA originally defined a “church plan” as a “plan established and maintained for its employees by a church,” a 1980 amendment to the statute expanded the term to include 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.” Thus, a plan maintained by such a “principal-purpose organization” qualifies as a church plan, regardless of who established the plan.

The Supreme Court decision is good news not just for church-affiliated hospitals, but for all church-affiliated organizations who would otherwise be faced with the daunting if not impossible task of bringing their benefit plans into compliance with ERISA requirements. For those organizations, “status quo” is the result for which they were praying (or at least hoping)!

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