ERISA Coverage

[Guest rkanar]

Can anyone think of any advantages for a church plan to elect ERISA coverage?

[Larry Hansen]

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.

[david rigby]

While we're on this topic, I have a corollary question.

Under ERISA, a church can "elect" to have its pension plan covered, and this is supposed to be a one-time non-revocable election. Any examples of a church trying to "unelect"?

[Larry Hansen]

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.

[david rigby]

Well, I was really focusing on whether there is real jurisdiction.

That is, if a church (without changing itself) wants to revoke its election, ERISA would prohibit this revocation, but is such prohibition really enforceable?

[Guest gaaberggillespie]

Now that the non-discrimination rules apply to non-electing church plans, I see little advantage to revoking the ERISA election by a Church. From a practical standpoint it avoids a lot of ambiguities and would make it simpler to comply. I think this would cause problems with respect to IRS Notice 98-39 and

[Guest gaaberggillespie]

I think that the advantage of going ahead and electing ERISA coverage actually simplifies all the rules for a church plan and enables them to adopt prototype plans, etc. since to have a true Church plan you would hae to adopt an individually designed plan that would remove all of the non-applicable ERISA language. For the most part, when an ERISA plan is modified for a Church or government, the ERISA language is not deleted, etc.

With TRA 86, there are very few exceptions worth fighting for when it comes to the previously exempted plans in my view.

[Guest gaaberggillespie]

Now that the non-discrimination rules apply to non-electing church plans, I see little advantage to revoking the ERISA election by a Church. From a practical standpoint it avoids a lot of ambiguities and would make it simpler to comply. I think this would cause problems with respect to IRS Notice 98-39 and