Disability Plans Not Subject to ERISA. The ERISA statute excepts five types of plans from coverage under the statute in the “Coverage” section found at 29 U.S.C. § 1003(b): (1) government plans; (2) church plans; (3) plans maintained solely for the purpose of complying with applicable workmen’s compensation laws or unemployment compensation or disability insurance laws; (4) plans maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens; and (5) excess benefit plans. Most of the litigation about these exceptions relate to (1) government plans and (2) church plans, discussed below. As for the others, the exception for plans maintained solely to comply with state workers’ compensation, unemployment or disability laws (3) ensures that ERISA only regulates plans voluntarily created by employers, and to ensure that the ERISA framework is not imposed on long-standing state programs like workers’ compensation programs. Plans maintained outside the U.S. (4) obviously apply to very few plans. And (5) excess benefit plans are a creature of the Revenue Code that allow employers to defer taxes on contributions to pension plan contributions beyond the limits normally imposed on 401(k), 403(b) and 401(a) plans, so they obviously have nothing to do with employee welfare plans, including disability plans.
ERISA defines government plans in its definitions section at 29 U.S.C. § 1002(32). The principle definition is a “plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.” But it also defines three other categories of plans as government plans: (1) “ any plan to which the Railroad Retirement Act of 1935, or 1937 [45 U.S.C. 231 et seq.] applies, and which is financed by contributions required under that Act;” (2) “any plan of an international organization which is exempt from taxation under the provisions of the International Organizations Immunities Act [22 U.S.C. 288 et seq.];” and (3) any plan “established and maintained by an Indian tribal government (as defined in section 7701 (a)(40) of title 26), a subdivision of an Indian tribal government (determined in accordance with section 7871 (d) of title 26), or an agency or instrumentality of either,” so long as all of the participants in the plan are employees of the entity and are in the performance of essential government function but not commercial activities.
With respect to this exeption, the bulk of litigation has to do with determining whether a plan is established or maintained by an agency or instrumentality of a state.
Turning to church plans, church plans are more difficult to fathom than the Holy Trinity. First, 1003(b) provides that a plan is exempt only if no election has been made under 26 U.S.C. 410(d), which is a part of the Internal Revenue Code that essentially allows a church or convention or association of churches to elect to have their plan not be a church plan as it relates to the Revenue Code. Such an election made for the Revenue Code applies equally to the ERISA statute, making the plan subject to ERISA.
But for plans established by a church or by a convention or association of churches that has not made such an election, ERISA defines church plans at 29 U.S.C. § 1002(33). The main definition at 1002(33)(A) is simple enough (as federal statutory language goes): a church plan is one that is “established and maintained (to the extent required in clause (ii) of subparagraph (B)) 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 501(c)(3) of title 26, in turn, makes exempt from federal taxes “Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes…” So any employer organized as a “501(c)(3)” corporation for tax purposes may, subject to the rest of the ERISA statute, be exempt from ERISA.
Clause 1002(33)(B) sets out the conditions under which a plan that meets the definition in clause (A) is nevertheless not a church plan: A plan established by a church or association of churches is not a church plan if it is “established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses (within the meaning of section 513 of title 26) [under 1002(33)(A)(i)],” or [under 1002(33)(A)(ii)] “if less than substantially all of the individuals included in the plan are individuals described in subparagraph (A) or in clause (ii) of subparagraph (C) (or their beneficiaries).”
Unpacking clause (33)(A)(i) requires a bit of understanding of the Revenue Code relating to tax exempt entities like churches. The Code distinguishes between the trade or business of such entities that are exempt from tax (their charitable, educational or other purpose or functions set forth at at §501 that are the basis of its tax exempt status), on one hand, from its trade or business that is not substantially related to those tax exempt purposes or functions, aside from those purposes or functions needed to produce income for its exempt purposes or functions or the use of such funds for such exempt purposes or functions, on the other hand.
With that in mind, clause (33)(A)(i) says that a plan established by a church or convention or association of churches that establishes a plan for the benefit of employees engaged in trade or business not substantially related to the trade or business that qualifies it as tax exempt under the Revenue Code are not exempt from ERISA as church plans. In plain English, a plan established by a tax exempt church or association or convention of churches for employees of theirs who are not engaged in the activities that make the church exempt from taxes is not exempt from ERISA.
Clause (33)(A)(ii) mandates that substantially all of the individuals included in the plan must fall into one of four categories: (1) employees of the church or convention or association of churches that established it; (2) pursuant to (33)(C)(ii), they are ministers of the church (regardless of how they are paid); or (3) are “employee[s] of an organization, whether a civil law corporation or otherwise, which is exempt from tax under section 501 of title 26 and which is controlled by or associated with a church or a convention or association of churches; or (4) are no longer employed by the church or convention or association of churches or a tax organization exempt organization described above that is controlled by or associated with a church or convention or association of churches but still retains that employee’s accrued benefit or account, or still receives contributions from such an employee, but only for a period of five years. So substantially all the participants in the plan must be (1) working for the church or convention or association of churches that created it; (2) ministers of the church; (3) working for a tax exempt 501(c)(3) entity controlled by the church or convention or association of churches that established the plan; or (4) former employees or the church or plan or association of churches or a 501(c)(3) entity they control who still have accrued benefits or accounts with the plan or is still contributing to the plan, as long it has not been five years since they were employed there.