On June 5, 2017, the United States Supreme Court, in an unanimous decision held in Advocated Health Care Network et al vs. Stapleton et al., that a plan does not have to be established by a church in order to qualify for ERISA’s church plan exemption. Plans maintained by tax-exempt organizations controlled by, or associated with, a church may qualify as church plans. This decision has significant implications and a number of issues that were not resolved.
The church plan definition would apply to defined benefit, defined contribution, 401(a), 401(k), 403(b), 456, non-qualified, and welfare plans. This case upholds that church plans, including organizations controlled by or associated with a church, do not need to adhere to ERISA’s requirements, including minimum funding requirements, notice and disclosure requirements, and insurance requirements. The plans are not required by ERISA standards to ensure plan solvency and protect plan participants. If a plan is not subject to ERISA, it may not need to file a Form 5500 Annual Return/Report of Employee Benefit Plan. The opinion the Supreme Court holds that a plan need not have been established by a church in order to qualify for the church plan exemption, requires the plan be maintained by a “principal-purpose organization." A "principal-purpose organization" is defined as an organization whose principal purpose or function is the administration or funding of a plan or program for the provision of retirement benefits, welfare benefits, or both, for the employees of a church, convention, or association of churches, if such organization is controlled by or associated with a church, convention, or association of churches.
The Supreme Court did not conclude on what qualifies as a “principal-purpose organization.” The question of what it means to be “controlled by” or “associated with” a church, convention, or association of churches, or the definition of a “church” remains. The statute does define “associated with” as sharing common religious bonds and convictions through private letter rulings and case law. The ERISA exemption for church plans helps to avoid unnecessary government entanglement in the financial affairs of churches under the First Amendment. The Supreme Court did not address whether the church plan exemption is unconstitutional or not under the Establishment clause of the First Amendment, at least to nonprofits that are not churches. The unresolved issues have been left to the lower courts and Congress to decide.
This is a good time for church plan sponsors to review their plan structures for all of their plans to show satisfaction of the traditional church plan definition. Review the “control by” or “association with” a church and the maintenance by a “principal purpose” organization. This would also include review plan terms, forms, notices and administrative practices for consistency with church plan status. Also, consider what state laws may apply.