Larry Hansen

Here's a link to the text of the Act (P.L. 106-244): http://frwebgate.access.gpo.gov/cgi-bin/ge...publ244.106.pdf Here's a link to the relevant section of the USC as added by the Act, 29 USC 1144a: http://caselaw.lp.findlaw.com/scripts/ts_s...le=29&sec=1144a

To my knowledge, there is no clear authority either way as to whether a 414(e) church welfare plan can elect ERISA coverage pursuant to Code section 410(d); however, based upon personal experience, I believe the DOL’s view is that only church retirement plans can elect to be covered under ERISA. Several years ago, we filed an advisory opinion request with the DOL to confirm that a church welfare plan could elect to be covered under ERISA. Because Code section 410(d) falls under the jurisdiction of the IRS, the DOL wouldn’t rule without the IRS’s blessing. So, we filed a private letter ruling request with the IRS. Ultimately, the IRS refused to rule favorably on the basis that section 410 is a vesting provision that affects only retirement plans.

According to section 410(d)(2) of the Internal Revenue Code, an election by a church plan to be subject to the Code's general vesting rules, which triggers coverage under ERISA, is "irrevocable." However, a plan might be able to effectively undo an election by changing its administration so that it no longer meets the definition of a church plan. A plan would no longer qualify as a church plan, for example, if it ceased to be "established and maintained by an organization [other than a church itself]. . . 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." Shifting the entity responsable for the plan's administration to the sponsoring organization's board of directors, which does many other things, might do the trick.

For a retirement plan there are few advantages. One possible advantage in the case of a defined benefit plan is PBGC coverage, although the advantage must be weighted against the cost of PBGC premiums. In the case of medical and other welfare plans, there may be more advantages, such as the preemption of state law, the elimination of punitive and extracontractural damages and the possible elimination of jury trials. Again, the advantages of ERISA coverage for a welfare plan would have to be weighted against the additional requirements under ERISA regarding reporting, COBRA, etc. Bear in mind too that according to the IRS and the DOL an church welfare plan cannot "elect" to be covered by ERISA. However, the same result might be accomplished by structuring the plan so that it technically fails to qualify as a chuch plan.