Timely Topics

"Church plans" are pension plans (including defined benefit or defined contribution plans) exempt (without an irrevocable election) from many of the legal requirements of the Employee Retirement Income Security Act (ERISA), such as from the funding, vesting and participation requirements, the nondiscrimination rules that apply to tax-sheltered 403(b) annuities, and annual Form 5500 reporting requirement. The ERISA nondiscrimination rules contain two requirements: (1) employers may not discriminate in favor of highly compensated employees when making nonelective employer contributions to employee TSAs; and (2) if any employee may elect to have the organization make a contribution to his or her TSA of more than $200, all employees may elect it. Simpler pre-ERISA nondiscrimination rules apply to qualified church plans.

But "church plans" may not be what they seem. Lower courts are split on whether, as the Internal Revenue Service (IRS) believes, a wide variety of religious organizations besides churches such as schools, hospitals, orphanages and retirement homes may offer church plans. On this point, contrast the first decision reported below with Rollins v. Dignity Health reported in the Religious Institutions Update, January 2014. Debate also centers on whether the "plan committee" is limited to church "pension boards," and the extent to which the religious organizations with church plans must be controlled by, operated or associated with a church. An integral relationship of some kind is essential. Also, under the Internal Revenue Code, a qualified church-controlled organization must not sell goods, services or facilities at more than a nominal cost on more than an incidental basis to the general public. §3121(w)(3)(B).

For the right religious organizations, church plans can offer significant advantages. But the considerations relevant to offering a church plan and qualifying one as such are complex matters that you should discuss with knowledgeable counsel with employee benefits and church-state experience.

Key Cases

Hospital System's Pension Plan Exempt from ERISA as "Church Plan"

In Overall v. Ascension, No. 13-11396, 2014 WL 1908428 (E.D. Mich. May 13, 2014), the court ruled that a "church plan" offered by Ascension Health Alliance and a member hospital qualified as such (pursuant to 29 U.S.C. §1003(b)(2)); therefore, the court dismissed the plaintiff's claims under the ERISA church plan exemption. First, the court ruled that a "church plan" need not be established by a church or place of "worshipful activity." Second, the court rejected the plaintiff's argument that the "plan committee" exemption in ERISA (§3(33)(I)) is limited to church "pension boards." A bona fide church plan may be established by hospitals or schools if they are administered by plan committees whose principal function is to administer the plan and if the plan committee is controlled by or associated with a church. Third, the court ruled that Ascension is controlled by and associated with the Roman Catholic Church. It is listed in the Official Catholic Directory; members of religious orders sit on boards of the organizations, bishops of the Roman Catholic Church oversee Ascension's facilities, and Ascension annually reports to the Vatican on how it is meeting its religious obligations to be a healing ministry of the Roman Catholic Church. Last, the court ruled that the plaintiff lacks standing to challenge the constitutionality of the church plan exemption.

Atheists Fail to Enjoin Tax Provisions Benefiting Churches and Religious Organizations

In American Atheists, Inc. v. Shulman, No. 2012-264(WOB), 2014 WL 2047911 (E.D. Ky. May 19, 2014), the court granted the commissioner of the Internal Revenue Service's (IRS) motion to dismiss this lawsuit, which sought to enjoin the commissioner from enforcing five provisions of the Internal Revenue Code, which the plaintiff argued are preferentially applied to churches and religious organizations: (1) churches are not required to file an application for recognition of tax-exempt status; (2) churches are not required to file an annual information return; (3) "ministers of the gospel" are able to receive a parsonage allowance; (4) salaries of ministers are exempted from income tax withholding and FICA taxes; and (5) the IRS is required to follow specific procedures when conducting a "church tax inquiry" or a "church tax examination." The court found that the plaintiff lacked standing. The plaintiff never applied to be a church or religious organization. Some atheist organizations have obtained this classification. No named individual plaintiffs claim they could not qualify for the "minister of the gospel" exemption either.

Faith-Based Dormitory Constitutional

In Smith v. Governor for State of Ala., No. 13-11173, 2014 WL 1303920 (11th Cir. Ap. 2, 2014), the court ruled that a prison's faith-based honor dormitory where inmates may receive mandatory class credit for attending religious classes does not violate the Establishment Clause. The court ruled that the dorm has the secular purpose of teaching inmates various life and job skills; the primary purpose of neither advancing nor prohibiting any religion because the dorm's spiritual-education element is only one of 20 suggested areas of programming; and the record contained no evidence that granting credits to classes about some, but not all, religions caused the department to become excessively entangled with religion.

Courts Reach Split Decisions on Constitutionality of ACA Exemption Certification

In Dobson v. Sebelius, No. 13-cv-03326-REB-CBS, 2014 WL 1571967 (D. Colo. Ap. 17, 2014), the court granted the plaintiffs' motion for preliminary injunction, enjoining enforcement of regulations contained within the Affordable Care Act (ACA), requiring the plaintiffs to execute and deliver a certification in order for them to obtain an exemption from the requirement that the plaintiffs have health insurance covering contraceptives, including, in the plaintiff's view, abortifacients. The plaintiffs argued that completing the certification would aid or abet a process which results in the provision of coverages required by the ACA and that this aiding or abetting would violate their religious beliefs and make them complicit in an immoral act. Likewise, the plaintiffs argued that dropping health insurance is contrary to their religious beliefs. The court ruled that the pressure to execute the certification imposed on the plaintiffs by the ACA is a substantial burden on their religious exercise. Furthermore, the court ruled that the Tenth Circuit has already found that the "interests articulated by the government are insufficient because they are broadly formulated interests justifying the general applicability of government mandates with 'almost no justification for not granting specific exemptions to particular religious claimants.'"

In contrast, in Diocese of Cheyenne v. Sebelius, No. 14-CV-21-SWS, 2014 WL 1911873 (D.Wyo. May 13, 2014), the court ruled that the plaintiffs failed to establish a likelihood of success on the merits or a likelihood of irreparable injury on their Religious Freedom Restoration Act (RFRA) claim, because they failed to show the ACA's accommodation to be a substantial burden upon their religious exercise. The court agreed with the Seventh Circuit, critiqued in Dobson, that the plaintiffs do not "aid or abet" contraceptive coverage through certification, because it is the ACA or government that requires it. The court in Dobson concluded that this type of analysis "can bleed subtly into an assessment of the validity or credibility of [] religious beliefs or the sincerity of those beliefs," which, however, courts must accept. The court in this case ruled, "Through the ACA's accommodation, Plaintiffs have the right to be exempted from participating in, providing, or paying for the costs associated with the objectionable contraceptive coverage based on their sincere religious beliefs, but they have no right to prevent a third party ... from meeting the ACA's requirements." The court noted that the certification demands only basic information and in no manner requires the plaintiffs to modify their behavior.

Sectarian Prayer Before Town Board Meetings Constitutional

In Town of Greece, N.Y. v. Galloway, No. 12-696, 134 S.Ct. 1811 (May 5, 2014), the court ruled that even sectarian prayer opening town board meetings is constitutional and comports with tradition in the United States when a town makes reasonable efforts to be inclusive of all faith traditions within a jurisdiction; does not as a practice denigrate nonbelievers or religious minorities, threaten damnation, or preach conversion; and does not require the public to participate in the prayers or indicate that their decisions may be influenced by a person's acquiescence in the prayer. The court observed, "As practiced by Congress since the framing of the Constitution, legislative prayer lends gravity to public business, reminds lawmakers to transcend petty differences in pursuit of a higher purpose, and expresses a common aspiration to a just and peaceful society." The court found that an insistence on nonsectarian or ecumenical prayer is not consistent with the tradition of legislative prayer practiced in the United States from the start, and would, contrary to the Establishment Clause, require legislatures that sponsor prayers and the courts to act as supervisors and censors of religious speech to enforce it. Furthermore, the court found that the legislative prayer tradition "assumes that adult citizens, firm in their own beliefs, can tolerate and perhaps appreciate a ceremonial prayer delivered by a person of a different faith." In the court's view, the primary audience for these prayers is the lawmakers themselves.

Unemployment Compensation Exemption for Churches Constitutional

In Spicer v. Tex. Workforce Comm'n, No. 05-13-00465-CV, 2014 WL 1600412 (Tex.App.-Dallas Ap. 22, 2014), the court ruled that a state statute exempting service in the employ of a church from the unemployment compensation system does not violate the Establishment Clause. The plaintiff, a pianist and organist for the Pleasant Valley United Methodist Church, failed to qualify for unemployment compensation when terminated because of the exemption. Applying the Lemon test, the court ruled that the exemption has a secular purpose: to address a concern associated with the efficient administration of the unemployment insurance program that coverage of workers whose employment patterns are irregular or whose wages are not easily accountable would adversely affect administration of the program. In addition, the court held that the primary effect of the law is not to advance religion even though the exemption allows churches to keep more of their resources. Last, the court ruled that the exemption removes any ongoing interaction between the government and a church regarding the unemployment compensation system and, thus, does not result in excessive entanglement. Therefore, the court found no Establishment Clause violation. Furthermore, the court ruled that the law does not violate the plaintiff's free exercise rights as the exemption does not put substantial pressure on him either to modify his behavior (including his music playing) or to violate his religious beliefs. The court also ruled that the exemption is consistent with the Equal Protection Clause because the government has a rational reason for it.

Ministerial Exception Doctrine Applies to Spiritual Director and Seminary Professor

In Conlon v. Intervarsity Christian Fellowship, No. 1:13-cv-1111, 2014 WL 1340752 (W.D. Mich. Ap. 3, 2014), the court ruled that the ministerial exception doctrine barred a terminated employee's claims for gender discrimination under Title VII and the Elliot-Larsen Act, and that Intervarsity did not waive its right to assert the exception by posting non-discrimination language on its website. The plaintiff was the spiritual director for Intervarsity staff, but was terminated after she was unable to reconcile her marriage. The plaintiff argued that she was treated differently than similarly-situated male employees who divorced their spouses and that the ministerial exception doctrine applies only to those cases in which a court would be required to evaluate religious doctrine. The court ruled, "[T]he ministerial exception prevents a court from evaluating the employment decisions of a religious organization regardless of whether the court would be required to delve into religious doctrine."

In Kirby v. Lexington Theological Seminary, No. 2012-SC-000519-DG, 2014 WL 1512223 (Ky. Ap. 17, 2014), the court decided that a former nonordained seminary professor with extensive involvement in the seminary's mission was a ministerial employee for purposes of the ministerial exception doctrine and dismissed his race discrimination claims, but not his breach of contract claim. The plaintiff sued the seminary after he was terminated as part of a reduction in force when he did not accept a severance package involving an additional year's employment, conditioned upon a release of all potential claims against the seminary. The court treated the doctrine as an affirmative defense similar to qualified immunity to be handled as a threshold matter, rather than as a jurisdictional bar. It ruled that the seminary was a religious institution subject to the doctrine and that the plaintiff was ministerial in light of the subject matter of his teaching; obligation to prepare students for the ministry; opening classes with prayer; participation in chapel services, convocations, faculty retreats and religious events; and preaching at various churches. Regarding the plaintiff's contract claims, the court reasoned that the enforcement of the contractual arrangement between the seminary and the plaintiff does not arouse concerns of government interference in the selection of ministers and the contract does not involve any matters of ecclesiastical concern or require inspection or evaluation of church doctrine. The court ruled that neutral principles of law can be applied to the contract claim where the relief the plaintiff seeks is compensatory, rather than reinstatement.

Presbyterian Church Buildings Belong to Denomination

In Peters Creek United Presbyterian Church v. Washington Presbytery of Penn., No. 1044 CD 2011, 1045 CD 2011, 2014 WL 110581 (Pa.Cmwlth. Ap. 30, 2014), the court ruled that, although the trial court was not required to defer to an ecclesiastical determination that the minority faction was the true church in resolving a property dispute using neutral principles of law, the amendments to a local church's corporate bylaws unequivocally indicated the congregation's intent to hold church property in trust for the national denomination and satisfied the statutory and common law requirements for creation of a trust. The court found that a denomination may not unilaterally declare a trust, but sufficient mutuality to create one in this instance. The court determined that enforcement of a provision of a national religious denomination's governing documents prohibiting local churches from voting to disaffiliate does not violate the Establishment Clause where it is freely entered into.

Ohio Christian School Loses Right to Relocate

In Tree of Life Christian Schs. v. City of Upper Arlington, No. 2:11-cv-009, 2014 WL 1576873 (S.D. Ohio Ap. 18, 2014), the court ruled that denial of a private Christian school's rezoning application and plan to consolidate four campuses at one location in a commercial office building as a non-permitted use within the "ORC Office and Research District" did not violate the Religious Land Use and Institutionalized Persons Act (RLUIPA), Equal Protection Clause, Free Exercise Clause, or Free Speech Clause as unconstitutionally vague or a prior restraint. For purposes of an "equal terms" challenge under RLUIPA and the Equal Protection Clause, the court ruled that the only proper comparator is a non-religious school and that the plaintiff failed to show that the city had treated a secular school any differently. All schools are excluded from the District. The court found that allowing a school to operate in the largest office building in the city poses a threat to its financial stability. It determined that any burden placed on the plaintiff's free exercise of religion was self-inflicted, because the plaintiff purchased the building fully aware of the zoning restrictions.

Constitutionality of Washington's Antidiscrimination Exemption to Be Reviewed

In Rahim v. Providence Health and Servs., No. C13-1499RAJ, 2014 WL 1744175 (W.D. Wash. May 1, 2014), the court declined for the time being to decide the constitutionality of the religious exemption from the Washington Law Against Discrimination, but warned it will likely have to decide the matter before the case is over.

Denying Off-Hours Public School Facilities to Church Not Unconstitutional

In Bronx Household of Faith v. Bd. of Educ. of the City of N.Y., No. 12-2730-cv, 2014 WL 1316301 (2d Cir. Ap. 3, 2014), the court ruled that the board of education has no obligation under the Free Exercise Clause to provide off-hours facilities to a church; the board's regulation against it was not based upon disapproval of religion but a desire to comply with the Establishment Clause; and the rule did not discriminate between religions in violation of the Free Exercise Clause merely because there is no secular analog or because it affects religions that conduct worship services and does not affect religions that do not. The court found that the regulation treats all religions the same by leaving them all free to engage in whatever practices they wish anywhere other than the board's facilities. Dissenting, Judge Walker argued that U.S. Supreme Court precedent "has foreclosed the possibility that an Establishment Clause violation would result if religious worship services were allowed in school facilities in these circumstances."

Religious Institutions in the News

Study reveals that more than a quarter of the world's population shares anti-Jewish sentiment. http://www.washingtonpost.com/national/religion/survey-one-quarter-of-the-world-harbors-anti-semitic-sentiment/2014/05/13/8be6de92-dacf-11e3-a837-8835df6c12c4_story.html.

U.S. Latinos are drifting from the Catholic Church. http://www.pewforum.org/2014/05/07/the-shifting-religious-identity-of-latinos-in-the-united-states/

Evangelicals and Catholics Togethermarked its 20-year anniversary. http://www.washingtonpost.com/national/religion/evangelicals-and-catholics-together-marks-20-years/2014/05/07/3fbee1c4-d62c-11e3-8f7d-7786660fff7c_story.html

Roughly an equal number of Americans are skeptical of and engaged with the Bible. http://www.americanbible.org/features/state-of-the-bible-research-2014

 

Topics:  Affordable Care Act, Breach of Contract, Churches, Defined Benefit Plans, Defined Contribution Plans, Equal Protection, ERISA, Exemptions, FICA Taxes, Form 5500, IRS, Non-Profits, Pensions, Prayer, Public Meetings, Religious Institutions, RLUIPA, Title VII, Unemployment Benefits

Published In: Civil Procedure Updates, Constitutional Law Updates, Education Updates, Health Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Holland & Knight LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »