THE NEED FOR CLARIFICATION IN THE .
ERISA CHURCH PLAN DEFINITION
This statement will
pension programs in
plans, the need for
plans, and specific
discuss briefly the background of church
this country, the impact of ERISA on church
clarification in the law with respect to church
recommendations for legislative action.
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BACKGROUND OF CHURCH PENSION PROGRAMS IN THIS COUNTRY
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Churches have traditionally felt a sense of responsibility for
making provision for their aged and disabled workers and their
families. Church pension programs have developed as a ministry
of churches.
The first pension programs in the United States were set up by
churches in the early 1700s (before there was an Internal Revenue
Code or an income tax) to provide benefits to ministers and other
church employees. As early as 1717 the Presbyterian Church es­
tablished a "Fund for Pious Uses." One of the first functions of
this fund was to provide a grant to the widow of a deceased minister.
In 1784 the Methodist Church established "The Preachers' Fund" to
make provision "first, for the worn-out preachers and then for the
widows and children of those that are dead." Church relief
ministry became a denomination-wide concern because ministers passed
from one presbytery to another or from one synod, diocese, con­
ference, district or state to another. The denominational boards
of relief that were developed became the denominational pension
boards of today which still operate relief, welfare and assistance
programs in addition to the pension programs which they operate.
As churches grew and their ministries increased, church boards,
commissions, and agencies were created to carry out the ministries
and missions supported by tithes and offerings of members of local
churches.
The nature of church work now may require ministers and lay workers
to serve not only in local churches, but also to serve in church
agencies. Additionally, many ministers in pursuit of their ministry,
serve as chaplains in church and non-church related organizations,
as evangelists, as church fund raisers, as employees of social
service or religious organizations and as employees of social ser­
vice agencies or religious organizations sponsored by other denomina­
tions or faiths. The denominational pension boards have served
the unique needs of the ministers and lay workers within their
respective denominations. Generally no church pension board pro­
gram is identical to that of another denomination's since church
denominations are organized differently, and a program serving the
needs of a hierarchically organized denomination might not meet
the needs of one serving a congregationally organized denomination.
Many congregationally organized churches and denominations have
developed individual account plans which provide annuity type benefit;
to participants throughout their denominational careers. Although
many of these programs were developed prior to the existence of the
Internal Revenue Code, many of these programs have been treated as
Code section 403(b) annuities for tax purposes. For years many of
these plans have been fully funded and participants have enjoyed
irnnediate vesting. ERISA has established standards that many exempt
church plans meet or are striving to achieve.
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THE IMPACT OF
ERISA ON CHURC
H PLANS —BASIC
ISSUES
The Empl
oyee
exempted churcRhetirement Income Security
Act. However, plans from major portio Act of 1974 (ERISA) has
the church plan because of the way churcns of coverage under the
plans. By thre exemption is not availa h plan is defined in ERIS
ble to many tr
A,
ERISA is having atening to fragment denom
a
d
i
t
i
o
n
a
l
c
threatens to un an adverse impact on or inational pension plans, hurcr
and responsibly dermine the way churches ganized religion and it
have functioned
for years.
successfully
Under the prese
3(33) and in Tint definition found in T
Revenue Code setle II of ERISA under whaitle I of ERISA at section
hibit a church ction 414(e) a church pl t is now known as Interna
1982. Furtherm plan from covering employan is defined so as to pro l
church plan mayore, the law may be inte ees of church agencies af­
into the plan a not cover employees of nrpreted to require that a ter
ew church agenc
fter 1974.
ies coming
The legislative
into fragments ly mandated splitting of
of separation o by 1982 contrasts sharply church retirement program
ministries and f church and state. By c with fundamental princips
role of definin functions, the governmen arving out certain churc les
church plan def g and limiting church mi t has taken upon itself th
nistries throug
he
their perision p inition. ERISA's splitti
h
t
h
e
E
R
I
religious denom rograms fails to recogni ng up of churches througShA
pension program inations today and the vize the uniqueness of organ
tal role that
s play.
denominationiazled
Under ERISA, ex
responsible exp isting church plans must
church employee erience and create two or by 1982 undo many years o
and agencies ars and one covering agenc more plans, one coverin f
offerings of che generally dependent upoy employees. "Since churchg
and maintaining urch members, the costs n the voluntary tithes a es
or require an u different plans may signof reorganizing a church nd
provide the sam nnecessary additional eco ificantly reduce plan benplan
with ERISA's rie level of benefits to p nomic burden on churches efit;
ments. If chur gid administrative and garticipants in order to c to
costs of complyches and church agencies overnment reporting requi omply
no alternative ing with ERISA, many of are faced with additiona re­
down on their m but to abandon their ret these organizatiions may l
which afford no inistries so as to pay tirement programs or to c have
ut
he increased ER
real economic b
ISA costs
enefit.
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SPECIFIC EXAMPLES OF ERISA PROBLEM AREAS FOR CHURCH PLANS
The following paragraphs describe some specific examples of ERISA
problem areas for church plans. The list of examples below is.by
no means exhaustive but rather is merely representative of some
of the problem areas facing church plans. Comments to proposed
"church plan" regulations enclosed with this statement describe
in more detail some of the "church plan" problem areas.
As noted by attorney Pat Persons in "ERISA and the Churches",
copy enclosed, the application of ERISA to retirement and other
benefit plans established by religious denominations would raise
questions of church-state relations under the First Amendment of the
U.S. Constitution. The possibility of such a church-state con­
frontation was recognized by Congress, as evidenced by the state­
ment in the Senate report explaining why church plans were not
made subject to the plan termination insurance requirements of
ERISA. This report states:
"The committee is concerned that the examination of books
and records that may be required in any particular case as part
of the careful and responsible administration of the insurance
system might be regarded as an unjustified invasion of the
confidential relationship that is believed to be appropriate
with regard to churches and their religious activities."
Although this statement was made with reference to the plan ter­
mination insurance provisions, it seems clear that the same reasoning
underlay the exemption accorded to church plans under other parts
of ERISA.
By exempting church plans from ERISA, Congress was endeavoring to
adhere to the long-established principle of separation of church
and state as expressed in the First Amendment. Decisions of the
Supreme Court in recent years have held that where a statute calls
for governmental action that raises a question under the religion
clauses of the First Amendment, in order to be constitutional "the
statute must not foster an excessive government entanglement with
religion." Church Alliance members believe that an excessive entan­
glement would result if ERISA were applied to church plans. It
is therefore important to take effective steps to prevent this
situation from arising.^
The statutory ban on new agencies participating in church plans in
ERISA section 3(33)(B) and (C) has already resulted in many employees
of church denominations being denied pension plan coverage. Other
denominations have allowed new agencies to join existing retire­
ment programs by taking the position that the denomination's existing
program was "established and maintained" for all church affiliates
prior to 1974 regardless of whether the new agencies' employees were
participating in the plan. Neither position is satisfactpry since
one leaves employees' without pension benefits and the other jeopar­
dizes the "church plan" status of the program.
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In its proposed regulati
ons the Treasury Depart
that if a church plan
ment took the
sh
ou
ld
ev
er
,
at
an
reason, fail to me
the requirements ofy a time or for whatever
thereafter regain et
church plan it can nev!
its exempt status unde
r
unnecessarily harsh be
ERISA. This position
ca
is"
us
e
a
fa
il
ur
e
to
a church plan may resu
me
et
th
e
re
qu
ir
em
en
ts of
are not now clearly delt from insignificant violations of
would give a church pl fined and will take years to resolve.
opportunity to correct an which has violated the applicable rule
from ERISA. Such a pr the violation and thereby retain its ex s an
functioning of church ovision seems essential to the orderly emption
plans.
Church plans are exempt
ments of Title I of ER from the reporting and disclosure requ
churches having plans ISA, but the IRS has a requirement that ire­
must file Form 5500.
all
organized denominations,
Fo
r
co
ng
re
gati ally
local churches could ea this requirement can mean that thon
sands of
they each have only on ch be required to file a Form 5500, ou
even if
e plan participant in
the plan.
The problems involved
to be a difficult and in fragmenting church plans by 1982 prom
lations on how church expensive administrative nightmare. No ises
proposed. The problem plans are to accomplish this task have beregu­
qualified plan to an ex of portability of benefits from an ERIS en
Ministers and lay pers empt church plan has not been addressed.A
national structure may ons desiring to move about within the de
them to endure gaps in find that ERISA regulations would requirnomi­
e
retirement coverage.
Under the existing stat
lose its exemption.unde ute, it is possible that a church plan
an employee of a churchr ERISA if it covers a minister who is might
a church agency). Howe (or until December 3L, 1982, an employ not
from time to time by sever, numerous ministers pursue their miee of
structure. Examples wo rving outside the formal denominational nistries
hospitals, prisons or uld be ministers employed as chaplains
colleges, or teaching
in
educational institution,
re
li
gi
ou
s
st
ud
ie
is important to such mi or serving as self-employed evangelisstin an
membership in Church Penisters, and to the denomination, that s. It
their
during such period of nsion Board's benefit plans be maintained
The proposed bill woulservice as a minister outside the denomi
nation.
jeopardizing the exempt d make clear that this can be done wi'tho
ut
status of the plans un
der ERISA.
A similar question exis
coverage of congregati ts under present law with respect to th
onal ministers or lay
e
currently employed beca
em
pl
oy
ee
s
wh
o
ar
e
no
use they are disabled
one job to another.
or in transition frtom
ERISA contains extensiv
of employee benefit pl e rules regarding the investment of asse
ans, and the purposes
ts
be disbursed. These ru
fo
r
wh
ic
h
su
ch
as
se
le
are appropriate for the s, which in some cases are quite rigi ts may
d,
which ERISA is concerne typical employee benefit plans wit{i
d. In such typical pl
ans, contributions are
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made to a fund by the employer, or the employees, or both, for the
purpose of providing benefits that are specified in the plan. ERISA
provides that the assets of such plans shall be used for the
exclusive purpose of providing benefits to participants and
benericiaries and defraying reasonable expenses of administering
the plans. However, since most church pension boards were es­
tablished for broader purposes than the exclusive purpose rule of
ERISA, the Federal government might be placed in the position of
determining the extent to which a church pension board's endowment
and other funds could be used for the board's general and religious
purposes, as distinguished from benefit plan purposes.
By failing to recognize church pension boards in ERISA section 403
requiring the establishment of a trust or the issuance of insurance
contracts "issued .by an insurance company qualified to do business
in a State," ERISA fails to deal with the question of whether a
church pension board will be allowed to continue to fund or administer
annuity programs of church agencies without operating under a
"church plan" exemption.
There are no statutory exemptions in ERISA section 408 for church
pension boards — they are not needed as long as the "church plan"
exemption applies. Statutory exemptions from the ERISA section
406 prohibited transactions provisions, such as those applicable
to banks and insurance companies in section 408(b)(4), (5), (6),
and (8), would probably not apply to a church pension board operating
without the "church plan" exemption. These sections appear to be
important enough for the insurance industry and others to seek even
greater exemptions just so they can-carry on business as usual. If
the technical application of section 406 is to apply to church pen­
sion boards without similar exemptions, traditional church pension
boards, if they continue to perform their traditional roles in de­
nominational pension programs beyond 1982, may be faced with un­
usually large legal expenses to avoid technical violation of the law.
The problem that is of the greatest concern to a number of the
denominations is the so-called church agency problem. As previously
mentioned, under present law a church plan cannot retain its ERISA
exemption after December 31, 1982 if it continues to cover employees
of cnurch agencies. Examples of church agencies would be any of
the following organizations which is affiliated with a church or a
convention or association of churches: a hospital, a school or
college, a nursing home, a retirement home, a drug-abuse center, or
a children's home or camp.
The Church Alliance has taken the position that because of the close
relationship that exists between churches and their affiliated
agencies, it is essential that the employees of the agencies be
eligible for coverage under the benefit plans of the church. If
this is not permitted, the agencies will have only two alternatives;
that is, either to establish ER.ISA plans for their employees or to
terminate their plans on December 31, 1982. Because of the expense
and red-tape connected with establishing ERISA plans, it is feared
that many agencies will choose to terminate their plans, thus deprivir
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their emoloyees of bene
of the church plan. Al fits which they are now receiving as me
are not allowed to partso, it is believed that if agency empl mbers
oyees
church employees within icipate in church plans,the mobility of
S.1090 and S.1092 woul the denomination will be greatly rest
employees in church pl d permit the continued coverage of agenricted.
ans after December 31,
cy
1982.
It is not an overstatem
enacted, the consequenc ent to say that if S.1090 and S.109J
very serious. The type es for all religious denominations wi are not
ll be
not appropriate for an of regulation mandated by ERISA is si
purpose such as the pe organization with a religious history mply
nsion boards of religi
ous denominations.and
LEGISL
ATIVE RECOMMENDATIONS
Members acting on beha
religious denomination lf of the pension programs of over twen
Alliance For Clarificats in the United States have formed the ty-five
Church Alliance member ion, of ERISA (the "Church Alliance"). Church
plan" definition so as s support the amendment of the ERISA "c The
cover employees of chur to recognize traditional church plans hurch
Church Alliance member ches and church agencies. In addition which
s support the removal
, the
defects in the law whic
of
a
nu
mb
er
of
denominational structur h do not recognize the differences intechnical
members are concerned es of various churches. Church Allian the
have pension benefits that many churches' plan participants ce
will not
church plans by ERISA provided for them if they are forced ou
requirements.
t of
Bills to clarify the ch
Alliance members have urch plan definition supported by the
of Georgia and Senator been introduced by Senator Herman E. Ta Church
by Congressman Barber Lloyd Bentsen of Texas (S.1090 and S.10lmadge
9J),
Bills introduced by th B. Conable, Jr. of New York (H.R.1576
Internal Revenue Code e same legislators amend section 403(b)and H.R.1578)
(S.1092 and H.R.1577).
of the
Enclosed as a part of
specifications for the this statement are brief summaries of th
Church Alliance For Cl legislation supported by the members ofe
(Congressional Record, arification of ERISA. The introductory the
S.1091, and S.1092 made page S54444 and following) concerning statements
some examples of proble by Senator Talmadge explain the bill S.1090,
s and give
ms the bills are intend
ed to relieve.
Additionally, letters
to the Commissioner of of comments on proposed ''church plan"
regulations
Internal Revenue are en
statement.
closed as a part of
this
An article "ERISA and
ment. The texts of th the Churches" is enclosed as a part of
May 23, 1978) are virte bills referred to in-that article (delthis state­
ually the same as S.10
ered
90, S.1091 and S.10iv
92.
It should be pointed ou
the following effect wi t that S.1090 and S.109| are intended
th respect to the foll
to have
owing;
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By including ordained ministers within the definition of
employee without requiring an employment relationship, the
bill permits a church plan to continue to cover a minister
who serves in the exercise of his ministry outside of the
denominational structure. The words "in the exercise of his
ministry" are to be given their plain meaning, and the restric­
tions placed upon these words in the regulations under such
provisions of the Code as sections 3121 and 1402 are not to be
employed. Thus, a chaplain in the Armed Forces of the United
States or a chaplain in a prison or a hospital, operated by the
United States, a State, Territory, or possession of the United
States, or the District of Columbia, or a foreign government,
or a political subdivision of any of the foregoing, would be
performing services in the exercise of his ministry. A
minister who teaches religious studies in a university that is
not church related could also receive coverage. An evangelistic
minister who has no employer would also be permitted to parti­
cipate in the church plan.
It should also be pointed out that these bills consider the denomina­
tional pension boards to be arms of churches carrying out the religious
function of compensating denominational workers.
CONCLUSION
The members of the Church Alliance For Clarification of ERISA support
S.1090, S.1Q91, and S.1092. The members acting on behalf of the"'
pension programs of the following denominations are as follows:
Mr. Robert Adler (Union of American Hebrew Congregations), Mr, Arthur
W. Brown (United Presbyterian Church in the U.S.A.), Mr. Gary W.
Brunson (Mennonite Churches), Mr. Harold A. Conrad (Church of God),
Dr. Charles C. Cowsert (Presbyterian Church in the United States),
Mr. Ray C. Dodds (Reorganized Church of Jesus Christ of Latter Day
Saints), Mr. William B. Duffy, Jr. (Unitarian Universalist Association
of Congregations in North America), Rev. James M. Cranberry, Jr.
(African Methodist Episcopal Church), Mr. Earl E. Haake (The Lutheran
Church-Missouri Synod), Mr. Thomas J. Hanrahan (Catholic Mutual Relief
Society), Mr. Gerald K. Hornung (United Methodist Church), Mr. Leo
Landes (United Synagogue of America), Dr. Darold H. Morgan (Southern
Baptist Convention), Dr. Dan M. Moore (Presbyterian Church in America),
Mr. W. L. Murrill (General Conference of Seventh-day Adventists),
Dr. John "V Ordway (United Church of Christ), Mr. Darrell Prichard
(Church of God in North America), Dr. Robert A. Robinson (Episcopal
Church), Dr. William Martin Smith (The Christian Church - Disciples
of Christ), Mr. John Storey (The Hesleyan Church), Mr. Joel K. Thompson
(Church of the Brethren), Rev. Henry F. Treptow (The American Lutheran
Church), Mr. Garrett C. Van de Riet (Christian Reformed Church in
North America), Dr. Jewett L. Walker (A.M.E. Zion Church), Dr. L.
Edwin Wang (Lutheran Church in America), Rev. Dean Wessels (Church of the
Nazarene) and Dr. Dean R. Wright (American Baptist Churches).
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