There are three kinds of 403(b) church plans: the plans of “steeple church”; those of the “Qualified Church Controlled Organizations” (or ”QCCO”, of which the K-12 parochial schools of a church are the best example); and of the “Non-Qualified Church Controlled Organization” (or “Non-QCCO”, of which church hospitals and universities are among the most common examples).
A number of “Non-QCCO” hospitals were sued for the way the managed their defined benefit plans. The lawsuits claimed that, due to a quirk in ERISA’s statutory language, only a “steeple church” could actually establish a church plan that was exempt from ERISA. This would mean that nether a QCCO or a Non-QCCO plan could qualify as an exempt church plan unless it was established by the steeple church to which they were related; they themselves could only maintain such a plan, not establish it. It also means that all of the QCCO and Non-QCCO 403(b) church plans which were not actually established by the “parent” church would not be exempt from ERISA.
Three different U.S. Courts of Appeal agreed with this analysis. Those rulings have caused more than a bit of consternation in the 403(b) world: just think of the logistical nightmare for all of those church related charities, universities and hospitals who have never, for example, filed a Form 5500.
The United States Supreme Court, in a case named Stapleton, has now disagreed with those lower courts, and unanimously ruled otherwise. It ruled that “church affiliated” organizations (meaning QCCOs and Non-QCCOs) can, indeed, establish retirement plans which are exempt from ERISA as church plans.
This has lifted a menacing cloud. Those 403(b) plans of church affiliated organizations which weren’t established by their related religious organization can still claim ERISA exempt church plan status.
The funny thing about this ruling is the impact it may have on the church plan challenge we typically deal with on a regular basis: is the organization affiliated “enough” with their related religious organization to be considered a church? The Supreme Court expressly did not address this question. What may be helpful, however, was the Court’s reliance on the historical treatment of those organizations in reaching its decision. I wonder if there may not be a bit of a “halo” effect (so to speak), and whether this will discourage further challenges to church plan status.