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What the Supreme Court Ruling on Church Plans May Mean for Your Organization

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The Employee Retirement Income Security Act of 1974 (ERISA), which provides regulations designed to protect employee benefit plan assets and participants, exempts church plans. Code Sec. 414(e)(3)(A) defines a church plan as:

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…

On June 5, 2017, the Supreme Court ruled that a plan maintained by a “principal-purpose” organization qualifies as a “church plan,” regardless of who established it. If this leaves you scratching your head, you’re not alone. What does this mean for your Christian nonprofit organization and its retirement plan?

It’s important to note that this ruling does not change the law, but rather interprets Congress’ intent when the regulation was last amended in 1980. The meat of the Supreme Court’s ruling is that an organization maintained or controlled by a congregational or hierarchical church is exempt from ERISA, regardless of who established the plan.

The fact that an organization is a religious organization does not automatically mean its plan is a church plan. However, if a nonprofit’s plan is controlled and maintained by a church, it may be exempt.

The ERISA exemption for church plans is not a green light to ignore best practices or make imprudent decisions. Most nonprofit organizations, including those that sponsor church plans, offer their employees a retirement plan to provide a platform for making wise financial decisions. Most employees expect that their employer exercises diligence in evaluating and selecting plan providers and investment options, takes steps to safeguard participant contributions, and works diligently to ensure administrative and investment costs are reasonable. Although the church plan exemption may exempt your plan from the plan audit and other requirements of ERISA, an employer that follows the principles embodied by the ERISA rules demonstrates it is keeping faith with its employees’ reliance that it will endeavor to make wise and prudent decisions.

Moreover, even if your plan is exempt from ERISA, it is still subject to state laws, which can vary significantly. If your organization operates in multiple states, you need to be aware of the laws in all of those states. ERISA preempts state laws and provides a uniform set of guidelines, enabling plan sponsors to more easily carry out their fiduciary responsibilities. A church plan sponsor may voluntarily elect to be subject to ERISA to take advantage of the uniformity provided by ERISA state law preemption and, therefore, avoid having to track the applicable law of multiple states.

You can read the Supreme Court’s decision here.

We recommend contacting your ERISA counsel if you have questions about how this ruling may affect your organization.

If you’re interested in learning more about our employee benefit plan audit or consulting services, including compliance assessment, please contact us. Our dedicated team of employee benefit plan auditors is specifically trained to work with benefit plans within nonprofit organizations and churches.

Emily Toler

Emily serves as a partner in the Indianapolis office and as the firm’s Employee Benefit Plan Services Director. She currently oversees more than 60 benefit plan audits and related filings. Emily has more than 15 years of experience providing audit and tax services for employee benefit plans, with a primary focus on 403(b) plans.

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