H&W Church Plans – What are they?

Recently, the United States Supreme Court brought some additional understanding to the question of what constitutes a “church plan” for purposes of ERISA.  While ERISA, generally speaking, regulates employer-sponsored employee pensions and welfare plans, it carves out an exemption for church plans.

ERISA’s original definition of a church plan was “a plan established and maintained . . . for its employees . . . by a church or by a convention or association of churches.”

A few years later, Congress amended this definition to include a plan “maintained by an organization . . . the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.”  For convenience, the court boiled this definition down to the phrase “principal-purpose organization”.

In a case called Advocate Health Network vs. Stapleton, the court considered claims by employees of several church-affiliated hospitals that benefit plans established by the hospitals should be governed by ERISA.  It was stipulated for the sake of argument that the plans in question were not “established” by a church but were “maintained” by a principal-purpose organization.  The question before the court was whether the “established” requirement from the original statute continued to apply to plans “maintained” by principal-purpose organizations.  The court held that it did not.

Accordingly, a plan that was established by an entity that was not a church (such as a hospital) can still be ERISA-exempt if the plan is maintained (i.e. administered or funded) by an organization controlled by or associated with a church.

The decision is notable in that it reversed the decisions of several lower courts which had (without exception) upheld the establishment requirement.

While this case cleared away some of the haze surrounding ERISA’s church plan exemption, it did not dissipate it entirely.  In particular, the court reserved for another day the question of the nature and extent of the association or control that a church must have or exercise over an organization to qualify it as a principal-purpose organization.