ERISA was enacted in 1974 to protect workers’ benefits in both pension plans and welfare plans, but that protection comes with many requirements. Church plans, however, are exempt from Titles I and IV of ERISA. As a result, defined benefit Church Plans need not comply, for example, with minimum funding requirements nor are they covered by the Pension Benefit Guaranty Corporation (PBGC). The PBGC is a federal agency created under ERISA to protect pension benefits in private-sector defined benefit plans and Covered Plans are required to pay increasing premiums for protection.
Recently, Church Plan status challenges have increased with generally unfavorable results to those employers claiming the Church Plan exemption where the plan was not established and maintained by a Church. Having an IRS Determination Letter favorably ruling on your Church Plan status may not help.
None of the current lawsuits have reached a conclusion yet. However, to date, the courts have not deferred to an IRS favorable determination of Church Plan status for such plans not established by a Church. The courts have ruled they should not defer to the IRS interpretation since they believe the intent of Congress is clear from the language of the statute.
If the court cases conclude with a ruling that the plans are not Church Plans, compliance with ERISA would necessitate the following actions:
- Amending the plan & trust documents to comply with ERISA.
- Funding the Plan to meet minimum funding standards, retroactively.
- Complying with all reporting and disclosure requirements.
- Paying PBGC premiums, retroactively.
In conclusion, Church Plan status is being challenged where the plan was not established and maintained by a Church. Given the legal, administrative and fiduciary issues, sponsors of Church Plans need to obtain an independent internal audit delineating the ramifications of ERISA compliance.
BPAS and Harbridge Consulting Group are prepared to assist in this regard. Please contact us with any concerns.