(b)lines Ask the Experts – Church Plans and State Laws

July 6, 2010 (PLANSPONSOR (b)lines) – A reader says: “What is the duty of a nonelecting church 403(b) plan to comply with state law, for example in the area of automatic enrollment? Would a church entity need to check state law, or at least state law rules concerning payroll deduction without consent?”

David Powell, Groom Law Group, answers:  

Church plans as defined in section 3(33) ERISA which have not made the election to be subject to ERISA under Internal Revenue Code section 410(d) are exempt from all of ERISA, and that generally includes the provisions of section 514 preempting state laws. (See section 4(b) of ERISA.) State laws therefore probably apply.    

You should be aware, though, that the Pension Protection Act of 2006 , which amended section 514(e) of ERISA to generally preempt any state law that would restrict automatic enrollment in the case of an “automatic contribution arrangement” of a “plan”  has introduced some ambiguity into the question. At least one piece of legislation was introduced for the purpose of clearly extending such preemption to church plans (S. 689, introduced in the 111th Congress by Sen. Kay Bailey Hutchinson, R-TX).   

Also, church plans are subject to various other exemptions under some state laws, so a careful review of the law of the state in question may be necessary.  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.