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Tony Sorrentino
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June 20, 2017
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Important Supreme Court Ruling on Church-Affiliated Organizations

In 1980, amendment to the Employee Retirement Income Security Act (ERISA) brought plans maintained by church-affiliated organizations into ERISAs church plan definition, but it left unclear whether a church-affiliated organization could establish a church plan. In several lawsuits, participants in retirement plans maintained by church-affiliated hospitals asserted that the plans did not qualify for the exemption – and thus were subject to ERISAs vesting, reporting and disclosure, funding, trust and fiduciary rules – because they had not been established by a church. The Third, Seventh and Ninth Circuits agreed with the participants and ruled that the hospital plans were subject to ERISA.

Last week, the U.S. Supreme Court consolidated the cases and has now reversed those rulings, and concluded that employee benefit plans established by church-affiliated organizations are church plans for purposes of ERISAs church plan exemption.

At issue was the portion of ERISAs church plan definition providing that a plan established and maintained by a church includes a plan maintained by an organization whose principal purpose is administering a plan providing benefits for employees of a church or church-affiliated nonprofit, so long as the administering organization is controlled by or associated with a church (a principal-purpose organization). The Court reasoned that if a plan established and maintained by a church is exempt, and a plan established and maintained by a church includes a plan maintained by a principal-purpose organization, then a plan maintained by a principal-purpose organization is an exempt church plan.

Further, the Court noted that if Congress intended the exemption to apply only to plans initially established by churches, it could have specified that a plan maintained (rather than established and maintained) by a church includes a plan maintained by a principal-purpose organization. Therefore, the exemption should apply to a plan maintained by a principal-purpose organization, regardless of which entity established the plan.

Action Plan: Although the stakes arguably are higher for retirement plans, church-plan status also has implications for welfare plans. Church-affiliated plan sponsors can breathe a sigh of relief, at least for the moment – the opposite result could have meant exposure for years of past ERISA non-compliance. But now Congress may consider further modifications to the exemption.

For additional information, please contact your Account Manager or Tony Sorrentino at 402.964.5470 or by email.

View a printable version of the bulletin here.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax advisor or plan provider. This information has been taken from sources which we believe to be reliable, but there is no guarantee as to its accuracy. The information provided herein is intended solely for SilverStone Group clients. You may not display, reproduce, copy, modify, license, sell or disseminate in any manner any information included in this special bulletin.

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