In an article published in June 2017 (see “Church Plan” Need Not Have Been Established by a Church), we discussed the decision of the U.S. Supreme Court on the ability of church-affiliated organizations to maintain “church plans” exempt from the requirements of the federal Employee Retirement Income Security Act (ERISA). In that case, the Court held that in order for an employee benefit plan to constitute a church plan, it need not have been established by an actual church, provided that it is maintained by a “principal-purpose organization.”
The term “principal-purpose organization” comes from Section 3(33)(C)(i) of ERISA, which provides that a church plan “includes a plan maintained by an organization, the principal purpose of which is the administration or funding of a plan for the provision of retirement or welfare benefits or both, for the employees of a church, if such organization is controlled by or associated with a church.”
In order to qualify as a principal-purpose organization, two essential elements must be satisfied:
First, the organization must be controlled by or associated with a church.
In determining whether an organization is controlled by a church, the IRS has considered such factors as the authority of the church to appoint and remove members of the organization’s Board, and whether governing documents (e.g., bylaws) require that Board members be limited to members of the church. An organization is associated with a church if it shares common religious bonds and convictions with that church. Factors include whether the organization carries out the functions of the church and has a parallel mission, and whether the organization receives financial support from the church.
Second, the “principal purpose” of the organization must be the administration or funding of the plan.
The IRS has historically ruled via private letter rulings that a retirement or benefits committee can qualify. However, neither the Board of Directors of the plan sponsor nor its Human Resources Department would normally qualify, as benefit plan administration typically only represents a fraction of their duties.
While the church plan status of plans maintained by smaller church-affiliated organizations are not as likely to be challenged by employees, compared to the plans that are maintained by large church-affiliated hospital systems and have been the subject of the church plan litigation, all church plan sponsors should be aware of this issue. Action items might include:
- a review of the relationship with the church (and solidification of those bonds, as necessary)
- establishing and/or shoring up a benefits committee whose “primary purpose” is plan administration and not other functions, and
- adoption of a formal charter or bylaws consistent with that primary purpose.
Houston Harbaugh remains available to advise and assist church-affiliated organizations on these issues, including preparation of an appropriate Benefits Committee Charter, as needed. For more information on this subject or to learn more about how we may assist you, contact Gary J. Gunnett at 412-288-2210 or firstname.lastname@example.org.