March 6, 2017

Church Plans and ERISA Caught in the Crosshairs (article)

Over the last several years, questions have arisen surrounding what entities can qualify for ERISA’s church plan exception.  As background, a church plan, unless it elects to be subject to ERISA, is exempt from ERISA. For ERISA purposes, a church plan is defined as “a plan established and maintained by a church; or, a plan established by a church and maintained by a tax exempt organization, the purpose of which is the administration and funding of the plan that is controlled by or in association with the church”.


Numerous rulings, information letters and opinion letters released by both the Internal Revenue Service and the Department of Labor in the past couple decades have stated that plans sponsored by affiliates of a church such as hospitals or schools, as long as they are sufficiently controlled by the church, can qualify for ERISA’s church plan exception.  This concept has been challenged several times. 


On December 2, 2016, the Supreme Court granted writs of certiorari in three cases from the Third, Seventh and Ninth Circuits.  The cases are Saint Peter’s Healthcare System v. Kaplan, Advocate Health Care Network v. Stapleton and Dignity Health v. Rollins, and have been consolidated for Supreme Court hearing purposes.  In a nutshell, the challenge in these cases is that participants of the retirement plans in question claim that they should be covered by ERISA’s funding rules, applicable to plans subject to ERISA.  The Supreme Court will review whether church-affiliated institutions, hospitals in these cases, are entitled to the church plan exemption under ERISA.  The Supreme Court has scheduled a hearing for this consolidated case on March 27, 2017 and is expected to opine on the matter later this year.


In a separate matter that will be clearly impacted by the ruling from the above-mentioned Supreme Court case relates to dispute involving a denial of benefits under an insured long-term disability plan administered by Prudential and maintained by a university affiliated with the Catholic Church (Durham v. Prudential Life Ins. Co. of America, No. 16-8202 (C.D. Cal. Feb. 10, 2017).   


Any church affiliated entity that believes it is entitled to claim church plan status should keep an eye on developments in this area.



The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.   

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