Church plans and employer contributions

[Barbara Hanis]

I continue to read that Church plans are exempt under ERISA, just to clarify, does that change once the employer (the church) makes contributions?  I understand that churchs have the option of ERISA/NON-ERISA choices.

[ERISAAPPLE]

Churches have to elect into ERISA.  If they don't, their plans are not covered by ERISA.  Unlike the safe harbor for plans in which have no employer involvement, the types of contributions (employer or employee only) does not matter. 

[Barbara Hanis]

Thank you so much ! that helps

 

[Patricia Neal Jensen]

ERISAAPPLE is exactly correct.  A church cannot even "accidentally" become ERISA (Unlike the troubles that can befall a "Non-ERISA" sponsored by a 501(c)(3) organization.).   No employer contribution makes these plans ERISA; no accidental filing of a 5500 makes them ERISA.  Eligibility and benefits can appear quite discriminatory in these plans (if you are used to ERISA rules).

 A specific written election must occur for these plans to be ERISA.  Our firm does quite a few of these and I have never had a church elect ERISA.

[Barbara Hanis]

Church plans seem to be such a gray area,  I am glad to hear of your track record of no church willingly you electing ERISA.

We do have several plans which are NON-ERISA who are 501(c)(3) organizations  Not sure what troubles or flags to keep an eye out for?

So other than a church requesting to be an ERISA plan (in writing) we can consider church plans to be Non-ERISA whether they have er contributions or not.

TY, BH

 

 

[ERISAAPPLE]

Barbara, you might want to reconsider whether your 501(c)(3) clients sponsor non-ERISA plans.  If they are not governmental entities, such as state universities, they are most likely covered by ERISA.  

[Patricia Neal Jensen]

Church plans are Not covered by ERISA in an entirely different way than a plan sponsored by a 501(c)(3) organization.  It is possible for a 501(c)(3) to sponsor a non-ERISA plan but it is difficult and the way is cluttered with problems!  They MUST follow a specific set of rules which are more complex than simply no employer contribution. 

"The Department of Labor (“DOL”) has provided guidance or safe harbors in two publications, Field Assistance Bulletin 2009-02 and Field Assistance Bulletin 2010-01 (summarized as follows):

1.     Employees must participate in the 403(b) on a voluntary basis.

2.     Only the employee or beneficiary can enforce rights under the annuity contract or custodial account.

3.     The employer makes no contribution.

4.     The employer receives no compensation except for a reasonable amount to cover expenses related to employer’s duties under the contracts.

5.     The employer has only minimal involvement with the administration of the plan, e.g., limited to depositing employee contributions, allowing vendors to explain their products, and providing investment choices."

It concerns me that you appear to have accepted someone else's opinion that these plans are Non-ERISA.  I never permit a new client or advisor, etc. to determine that for me.  It is too dangerous.  If the plan is actually ERISA  (plan sponsor making loan eligibility determinations, for example) and it is discovered on audit, that plan will be subject to fines and penalties for not filing 5500's etc.  I try to avoid being the TPA in that situation!  There is a Court case in Wisconsin where a "Non-ERISA plan" was sending in the employee contributions late and the DOL and the court determined that the delay in making the contributions was evidence of employer control over that plan and that control made the plan ERISA.

Non-ERISA plans sponsored by a 501(3) are endangered.  In our working life, I predict they will be gone.  They are a challenge to maintain and I make sure a client which wants one is very aware of this risk.

[Patricia Neal Jensen]

Just thought of something to add:  A wise attorney friend of mine has reminded me that without ERISA preemption,  such plans are subject to state fiduciary laws in whatever state they are in.  His summary of this problem is that there are still applicable fiduciary rules, we just don't know as much about them!