Religious Institutions Update: June 2014

Nathan A."Nate" Adams is a Partner in our Tallahassee office.

Timely Topics

"Church plans" are pension plans (including defined benefit or defined contribution plans) exempt (without an irrevocable election) from many of the legal requirements of the Employee Retirement Income Security Act (ERISA), such as from the funding, vesting and participation requirements, the nondiscrimination rules that apply to tax-sheltered 403(b) annuities, and annual Form 5500 reporting requirement. The ERISA nondiscrimination rules contain two requirements: (1) employers may not discriminate in favor of highly compensated employees when making nonelective employer contributions to employee TSAs; and (2) if any employee may elect to have the organization make a contribution to his or her TSA of more than $200, all employees may elect it. Simpler pre-ERISA nondiscrimination rules apply to qualified church plans.

But "church plans" may not be what they seem. Lower courts are split on whether, as the Internal Revenue Service (IRS) believes, a wide variety of religious organizations besides churches such as schools, hospitals, orphanages and retirement homes may offer church plans. On this point, contrast the first decision reported below with Rollins v. Dignity Health reported in the Religious Institutions Update, January 2014. Debate also centers on whether the "plan committee" is limited to church "pension boards," and the extent to which the religious organizations with church plans must be controlled by, operated or associated with a church. An integral relationship of some kind is essential. Also, under the Internal Revenue Code, a qualified church-controlled organization must not sell goods, services or facilities at more than a nominal cost on more than an incidental basis to the general public. §3121(w)(3)(B).

For the right religious organizations, church plans can offer significant advantages. But the considerations relevant to offering a church plan and qualifying one as such are complex matters that you should discuss with knowledgeable counsel with employee benefits and church-state experience.

Key Cases

Hospital System's Pension Plan Exempt from ERISA as "Church Plan"

In Overall v. Ascension, No. 13-11396, 2014 WL 1908428 (E.D. Mich. May 13, 2014), the court ruled that a "church plan" offered by Ascension Health Alliance and a member hospital qualified as such (pursuant to 29 U.S.C. §1003(b)(2)); therefore, the court dismissed the plaintiff's claims under the ERISA church plan exemption. First, the court ruled that a "church plan" need not be established by a church or place of "worshipful activity." Second, the court rejected the plaintiff's argument that the "plan committee" exemption in ERISA (§3(33)(I)) is limited to church "pension boards." A bona fide church plan may be established by hospitals or schools if they are administered by plan committees whose principal function is to administer the plan and if the plan committee is controlled by or associated with a church. Third, the court ruled that Ascension is controlled by and associated with the Roman Catholic Church. It is listed in the Official Catholic Directory; members of religious orders sit on boards of the organizations, bishops of the Roman Catholic Church oversee Ascension's facilities, and Ascension annually reports to the Vatican on how it is meeting its religious obligations to be a healing ministry of the Roman Catholic Church. Last, the court ruled that the plaintiff lacks standing to challenge the constitutionality of the church plan exemption.

Atheists Fail to Enjoin Tax Provisions Benefiting Churches and Religious Organizations

In American Atheists, Inc. v. Shulman, No. 2012-264(WOB), 2014 WL 2047911 (E.D. Ky. May 19, 2014), the court granted the commissioner of the Internal Revenue Service's (IRS) motion to dismiss this lawsuit, which sought to enjoin the commissioner from enforcing five provisions of the Internal Revenue Code, which the plaintiff argued are preferentially applied to churches and religious organizations...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT