Compliance December 30, 2015

3rd Circuit Reiterates Only Churches Can Establish Church Plans

The court is the first of the appellate courts to rule on recent church plan litigation.
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The 3rd U.S. Circuit Court of Appeals has agreed with a district court ruling that because no church established St. Peter’s Healthcare System’s defined benefit retirement plan, it is ineligible for church plan exemption.

The court noted that in the decades since the current definition of church plan enactment, various courts have assumed that entities that are not churches but have sufficiently strong ties to churches can establish church plans exempt from the Employee Retirement Income Security Act (ERISA). But, in a new wave of litigation, district courts have considered whether the actual words of the church plan definition precludes this result.

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In three of the six current cases, the courts have found that only churches can establish a church plan exempt from ERISA. The other three courts have found that plans established and maintained by church agencies can qualify for ERISA exemption. The 7th Circuit has heard oral arguments in Stapleton v. Advocate Health Care Network and Subsidiaries, in which a district court found only churches can establish church plans, but the 3rd Circuit is the first appellate court to issue an opinion, setting a precedent for the circuits.

NEXT: Problems with ERISA definition solved

The 3rd Circuit noted that in the years following ERISA’s enactment, the definition of church plan in that statute led to two problems.  First, many churches established their own retirement plans but relied on church pension boards for plan maintenance. Churches that followed this practice were worried that since the church itself did not maintain their plans, the plans would not technically qualify for ERISA exemption. Second, churches wanted the ability to continue to cover the employees of church agencies, such as church hospitals, in their plans after the sunset provision of Section 3(33)(C) took effect at the end of 1982.

The appellate court said it was with the intent to address these two problems that Congress, as part of the Multiemployer Pension Plan Amendments Act of 1980, established an amended definition of church plans. Section 3(33)(A) said, “The term “church plan” means a plan established and maintained .  .  .  for its employees (or their beneficiaries) by a church or by a convention or association of churches which is exempt from tax under section 501 of Title 26.” Section 3(33)(C) was amended to say, “A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, 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, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a  church or convention or association of churches.”

The new definition solved both problems with the definition in ERISA, but it did not annul the requirement that a plan be established by a church in order to qualify for church plan exemption, the court said. Prior to 1980, a plan had to be established and maintained by a church. After 1980, a plan had to be established by a church, but could be maintained by a church agency. For church plan exemption, there are two requirements—establishment and maintenance—and only the maintenance requirement is expanded by the use of the word “includes,” the court said.

NEXT: St. Peter’s testimony concedes to court’s logic

According to the court opinion, St. Peter’s essentially conceded to this logic when presented with this example during oral argument: Congress passes a law that any person who is disabled and a veteran is entitled to free insurance. In the ensuing years, there is a question about whether people who served in the National Guard are veterans for purposes of the statute. So, to clarify, Congress passes an amendment saying that, for purposes of the provision, “a person who is disabled and a veteran includes a person who served in the National Guard.” Asked if a person who served in the National Guard but is not disabled qualifies to collect free insurance, St. Peter’s responded that such a person does not because only the second of the two conditions was satisfied. 

The court noted that Congress could have said that a plan “established and maintained” by a church includes a plan “established and maintained” by a church agency, but it didn’t. In addition, the 3rd Circuit has noted before that ERISA is a “remedial” statute that should be “liberally construed in favor of protecting the participants in employee benefit plans.” Excluding plans established by church agencies would take a large number of employees outside the scope of ERISA protections.

As for the history of Internal Revenue Service (IRS) private letter rulings have held that a church-related agency can establish its own church plan, St. Peter’s pointed to a 1983 IRS memorandum stating the agency’s position. The court said such things that are not formal notice-and-comment rulemaking are only owed deference to the extent they have the power to persuade, and the memorandum lacks the power to persuade because it does not even consider the church establishment requirement, but “skips directly (and inexplicably) to Section 3(33)(C).” The court concluded, “Because the IRS’ position is at odds with the statutory text, we owe it no deference.”

The opinion in Kaplan v. St. Peter’s Healthcare System is here.

Data & Research December 30, 2015

‘Overwhelmed’ Consumers Could Use Adviser Help

Lincoln Financial survey probes Americans attitudes toward money and saving.
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The bad news, according to a new study, is that consumers put cell phones before retirement accounts when choosing how to spend their money. The good news is that many would like to allocate more toward retirement planning and know they need help, says Kristen Phillips, senior vice president, insurance and retirement solutions marketing and strategy at Lincoln Financial Group.

The company surveyed a wide, and deep, swath of American adults—over 2,500, in fact—to learn their attitudes toward money, financial security, budgeting and how retirement and insurance solutions mesh with their priorities and needs, Phillips says.

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The result is the “2015 American Consumer Study,” Lincoln’s second such annual tracking report. The findings reflect the company’s “deeper dive into segmentation,” says Dan Gangemi, Lincoln’s head of research and insight, retirement plans and group benefits.

Of most interest to retirement plan advisers, Phillips says, is that almost half of the consumers surveyed—Millennials through Baby Boomers—said they want to build a retirement nest egg; only 10% responded they haven’t saved much and are comfortable with that.

Yet, of those who want to save more, less than 50% are actually doing so. Part of the reason may be confusion over how. “While [the respondents] view retirement plans—and employer-sponsored plans especially—as a really important part of their planning, they don’t necessarily understand them well,” Phillips says. “Things consumers don’t understand they’re likely not to take action on.”

 

Gangemi agrees, citing the variety of decisions they may feel ill-equipped to make: “join the plan, create a deferral, continue to increase that deferral over time, select the investments.” Couple that with decisionmaking about complex health and ancillary benefits, he says, and “consumers can’t do it on their own—they feel overwhelmed, and they tell us that.”

NEXT: How advisers can help

 

The solution, Phillips and Gangemi stress, is education and guidance, notably through an adviser. While consumers appreciate information online or in print—and want communications through multiple forms—the most valuable form is conversation with an expert, face-to-face, Phillips says. She points to proprietary findings that “consumers who work directly with a retirement consultant or adviser tend to be more satisfied with their retirement plans, tend to be saving more and to have better outcomes.”

Education can especially target another of the new survey’s key findings: Many consumers fail to see retirement planning as an immediate need. “Some of their immediate needs, whether they be household necessities, health insurance or even Internet and cell phone costs, trump retirement planning,” Phillips says. “In the general priorities of spending in a typical household, it doesn’t fall within the top 10.”

Advisers can help significantly by explaining the importance of saving for retirement, even if the event is decades away, she says. Their challenge is to make a complex subject simple and thereby remove the roadblock to action. She recommends, in part, a simple message: Increasing savings by even tiny amounts will help. “Saving little bits here or there from what they perceive is higher-priority spend will make a huge difference.”

Advisers should be encouraged to know that many consumers are motivated to save, Phillips says. Also, that many Millennials appear to have a saving-mindset. Of the three generations surveyed, the youngest were more apt to identify themselves as savers, the study reports. This trend goes beyond the fact they may have watched parents’ savings collapse during the financial crisis of 2008 and 2009, Gangemi says. Many were forced to move home at that time and learned a pragmatic approach to money and saving from parents and grandparents, he says.

NEXT: Further findings

In more general findings about finance, 40% of Millennials felt “confident and in control” of their money, vs. 35% of Generation Xers or 34.5% of Baby Boomers. And, over all three cohorts, 66% believe financial stability means meeting present needs and saving for the future; almost half that number (30%) said “‘raising future standard of living’ is also an important component of feeling financially secure.”

Compared with last year’s results, the respondents seemed “a little more relaxed, more confident” about their relationship with money, Gangemi says. Their spending priorities and degree of myopia about long-term needs remain much the same, as do their admissions that they need help, he says.

On the whole, though, the respondents turn to people other than advisers to get that help. The largest percentage of all three generations—37% of Millennials, 35% of Gen Xers and 30% of younger Boomers—seek advice on retirement and insurance products from friends, co-workers or family. In comparison, 25%, 26% and 19%, respectively, seek it from their employer and 22%, 27% and 25% from their provider’s website. Boomers are the most likely to consult an adviser.

These findings scratch the surface of the survey results, which Lincoln plans to use to inform product development and educational activities, along with supporting sales and marketing efforts, Phillips says. “The sample size is large enough that we can do a number of different cuts of the data, particularly around generations and ethnicities.”

“Not every Latino American is or thinks the same,” agrees Gangemi. “Not every woman or man thinks the same about finances.” Rather than just segment by gender, ethnicity or generation, he says, “we’ve started to look at [the data] across the different segments. A Gen X Latino woman might have, based on her life stage or age, some very specific needs that someone who looks the same doesn’t. We think about it as ‘diversity within diversity,’” he says.  

Lincoln will follow up with a tracking study in the first quarter of the new year. A snapshot of the company’s current survey may be accessed here.

Results of the American Consumer Study are based on an online survey of 2,515 adults 18 years of age or older across the U.S., conducted in 2015 by Lincoln Financial Group and Penn Schoen Berland. Lincoln Financial Group provides advice and solutions through its investment management and insurance businesses. 

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