Why are church plans not covered by federal laws?

When the Employee Retirement Income Security Act of 1974 (ERISA) was passed, lawmakers made an exception for retirement plans that were established and maintained by churches for their own employees. According to a Senate report, Congress did not want the careful administration of plans for the federal pension insurance purposes to be seen as “an unjustified invasion of the confidential relationship” between “churches and their religious activities.”

With the passage of a law in 1980, Congress made two modifications that greatly expanded the number of workers covered by church plans. The law:

• Broadened the definition of church plan to allow plans that churches established and maintained for their own employees to include the employees of church-related tax-exempt organizations, such as hospitals and schools.
• Allowed certain other plans that were maintained by “church pension boards” to be treated as church plans. These plans were maintained by organizations associated with churches that had as their principal purpose the administration or funding of pension plans. The lawmakers who asked for this change explained at the time that the change was needed because “employment is extremely fluid within denominations” and “ministers and lay employees have a unique need to be covered by one plan.”

Congress never intended that participants in retirement plans that were neither established and maintained by a church nor maintained by a church pension board be denied the protections of the ERISA.

Despite specific statutory language and a clear legislative history, the government agencies charged with interpreting the law began issuing rulings that allowed other pension plans to claim church plan status in 1983. It did not matter that these plans were not established by a church or maintained by a church pension board.  The only requirement was that the plans have an administrative committee in which at least one member had some kind of religious affiliation.

These rulings, which were issued to employers without the knowledge of their employees, made it possible for the employers to avoid all of the requirements of ERISA – without having to inform employees. In some cases, the employees had been fully protected by the federal law for their entire careers before their plans applied for church plan status.

In at least 85 cases, the plans sought and received refunds of the pension insurance premiums that guaranteed retirees’ pensions.

In 2007, in response to a lawsuit, the Internal Revenue Service temporarily stopped issuing church plan rulings in order to review its policies.

Church plan participants are the only private-sector workers, other than certain executives, whose pensions are not protected by ERISA.

Learn more about church plans by reading these fact sheets:

• The facts about church pension plans
• What is a “church pension plan”?
• Why does it matter if a pension plan is a church plan?
• What are the types of church pension plans?
• The legislative history of church pension plans
• What can you do to protect employees in church pension plans?
• Workers covered by church pension plans tell their stories