(b)lines Ask the Experts – Why Would a Church Plan Elect ERISA Coverage?

I am an adviser who works with church plans, and am thus familiar with the phrase “non-electing” church plan as not electing Employee Retirement Income Security Act (ERISA) coverage.

“But there is one thing I do not understand; why in the world would a church ever want to elect ERISA coverage in the first place? Have the Experts come across examples of churches who have elected ERISA coverage for their plans, and, if so, why?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:  

Interesting question! The Experts agree that it is truly a rare event that a church plan sponsor would intentionally elect to be covered under ERISA. The reason for this is that ERISA entails many administrative burdens, including filing Form 5500 annual reports, distributing a myriad of participant disclosures, and the like.

In addition, for church defined benefit plans, Pension Benefit Guaranty Corporation (PBGC) premium payments would be required if an ERISA election was made, though the payments go toward providing an insured benefit to participants were the church plan to become insolvent. And, with respect to this latter scenario the Experts have seen a church plan sponsor of two that have had historic financial issues elect ERISA coverage for their defined benefit plans so that their employees would indeed be somewhat protected in the event of an insolvency. However, this is a truly rare event, encompassing perhaps a handful of church plans in the hundreds that the Experts have come across.

However, many church plan sponsors have been under the mistaken impression that they had “inadvertently” elected ERISA coverage via taking such actions as adopting a plan document with ERISA language, or filing Form 5500s. It is important to understand that, at least under current law, church plans CANNOT elect ERISA coverage in this fashion. The only way that the regulations indicate that a church plan can elect to be covered under ERISA is for a church plan sponsor to attach a written statement to either the Form 5500 that is filed for the first plan year for which the election is effective or a written request for a determination letter relating to qualification of the plan. Church plans cannot elect ERISA coverage in any other fashion, making “inadvertent” coverage essentially impossible (subject to any changes that may arise in the ongoing litigation over church plan status).

Thank you for your question!


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.  

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