Compliance January 31, 2017

Agencies Say Church Plan Interpretation Deserves Deference

“If there were any doubt about the best interpretation of the church-plan definition, it would be resolved by the position adopted and consistently applied by the IRS, DOL, and PBGC,” counsel for the agencies state in an amicus curiae brief filed with the Supreme Court.

Reported by

Rebecca Moore

A group of attorneys representing the Department of Justice, the Treasury Department, the Internal Revenue Service (IRS), the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) filed a brief for amicus curiae in the U.S. Supreme Court supporting health care organizations that have had their pension plans’ church plan status under the Employee Retirement Income Security Act (ERISA) challenged.

The brief notes that, prior to 1980, a broad coalition of religious organizations formed the Church Alliance for the Clarification of ERISA (Church Alliance) to seek changes to the original church-plan exemption. Among other things, the Church Alliance opposed the sunset of the temporary rule allowing church plans to cover the employees of church agencies. It also argued that the original definition’s focus on plans established and maintained by “churches” favored hierarchical denominations over congregational denominations, which typically relied on separate pension boards to administer the plans covering the employees of local churches and church agencies.

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In addition, the Church Alliance opposed government inquiries aimed at determining whether particular entities were sufficiently religious to qualify as “churches” entitled to establish and maintain exempt plans.

According to the brief, Congress responded to those concerns by substantially expanding ERISA’s church-plan exemption in the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). The agencies note that the MPPAA amendments preserved the core of the original definition, continuing to provide that “[t]he term ‘church plan’ means a plan established and maintained for its employees (or their beneficiaries) by a church.” But Congress broadened the exemption by adopting provisions deeming additional plans to satisfy that definition even though they did not fall within its literal terms.

The brief notes that Congress specified that, for purposes of the church-plan definition, “[t]he term employee of a church includes an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under [26 U.S.C. 501] and which is controlled by or associated with a church.” A separate provision provides that “[a] church shall be deemed the employer of any individual included as an employee” under that rule. The brief says those provisions allow “a church plan to cover employees of a tax-exempt agency controlled by or affiliated with a church,” such as a religious hospital.

The brief also notes that Congress addressed the concerns of congregational denominations by specifying that “[a] plan established and maintained for its employees (or their beneficiaries) by a church”—that is, a church plan—“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 for the employees of a church if such organization is controlled by or associated with a church.” The agencies say that under that provision, a plan maintained by a church-affiliated pension board or other “principal-purpose” organization is deemed to be a church plan.

NEXT: Deference to longstanding interpretation

The brief further states that the IRS concluded that a plan may qualify as a church plan under the MPPAA amendments if it is either “established and maintained by a church,” or “maintained” by a principal-purpose organization. The IRS therefore determined that, although the orders’ plans had not been established by a church, they would qualify as church plans so long as they were maintained by principal-purpose organizations.

In the decades since, the IRS has issued hundreds of private letter rulings confirming the exempt status of particular plans based on its conclusion that a plan maintained by a principal-purpose organization need not be “established” by a church to qualify as a church plan. The brief notes that the DOL has likewise concluded that the identical definition in Title I of ERISA does not require a church to establish a church plan in the first instance.

The agencies argue that their longstanding interpretation reflects the natural reading of the statutory text, and they argue their interpretation warrants deference under Skidmore v. Swift & Co. Under Skidmore, the court found the weight due to such an administrative construction “depend[s] upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”

The agencies contend the courts of appeals in the three cases identified no sound reason to upset decades of reliance on the agencies’ longstanding interpretation by imposing a church-establishment requirement. The courts of appeals appeared to believe that requiring a church to “establish” a church plan would ensure that the church retained control of or financial responsibility for the plan, the brief says. “Even if that were correct, the courts’ apparent view that an ERISA exemption should be conditioned on continuing church involvement would not justify the imposition of a requirement that Congress omitted from the statute. And in any event, requiring a church to establish a plan in the first instance would not guarantee such an ongoing role,” counsel for the agencies wrote in the brief.