The New Jersey Senate budget committee has approved a bill creating a retirement program for private-sector workers that are not offered employer-sponsored plans.
The “New Jersey Secure Choice Savings Program Act” would require employers with 25 or more employees that do not sponsor their own retirement plans to automatically enroll employees into a state-run program. Employees that do not opt out will automatically have 3% of their salary deferred into an individual retirement account (IRA), and can change the amount deferred, keeping in mind IRA contribution limits.
The bill would establish the New Jersey Secure Choice Savings Board, which will oversee the program. Language in the act describing the board’s duties is similar to that of the Employee Retirement Income Security Act (ERISA). The act says board members will discharge their duties “solely in the interest of the program’s enrollees and beneficiaries,” and will invest with “the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with those matters would use in the conduct of an enterprise of a similar character and with similar aims.”
The committee’s approval of the bill in New Jersey comes after the Department of Labor (DOL) issued proposed guidance for states that want to create such programs. The rulemaking has a particular focus on helping states bring such plans into alignment with the procedures and requirements of ERISA, and also offers potential safe harbor protections for states implementing auto-IRAs.
Other states have already implemented state-run retirement programs for private-sector employees, trying to close the retirement plan coverage gap. But, a study for the state of California and its Secure Choice Retirement Savings Plan found that while the majority of workers surveyed say such a program would be good for them, a significant number still would not save or save enough.
Appellate Court Sets Precedent for Church Plan Cases
The first of the appellate courts to rule on recent church plan litigation, the 3rd Circuit reiterated that only churches may establish ERISA-exempt church plans.
The 3rd U.S. Circuit Court of Appeals has agreed with a district court ruling that because no church established St. Peter’s Healthcare System’s defined benefit retirement plan, it is ineligible for church plan exemption.
The court noted that in the decades since the current definition of church plan enactment, various courts have assumed that entities that are not churches but have sufficiently strong ties to churches can establish church plans exempt from the Employee Retirement Income Security Act (ERISA). But, in a new wave of litigation, district courts have considered whether the actual words of the church plan definition precludes this result.
In three of the six current cases, the courts have found that only churches can establish a church plan exempt from ERISA. The other three courts have found that plans established and maintained by church agencies can qualify for ERISA exemption. The 7th Circuit has heard oral arguments in Stapleton v. Advocate Health Care Network and Subsidiaries, in which a district court found only churches can establish church plans, but the 3rd Circuit is the first appellate court to issue an opinion, setting a precedent for the circuits.
NEXT: Problems with ERISA definition solved
The 3rd Circuit noted that in the years following ERISA’s enactment, the definition of church plan in that statute led to two problems. First, many churches established their own retirement plans but relied on church pension boards for plan maintenance. Churches that followed this practice were worried that since the church itself did not maintain their plans, the plans would not technically qualify for ERISA exemption. Second, churches wanted the ability to continue to cover the employees of church agencies, such as church hospitals, in their plans after the sunset provision of Section 3(33)(C) took effect at the end of 1982.
The appellate court said it was with the intent to address these two problems that Congress, as part of the Multiemployer Pension Plan Amendments Act of 1980, established an amended definition of church plans. Section 3(33)(A) said, “The term “church plan” means a plan established and maintained . . . 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 3(33)(C) was amended to say, “A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches 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 or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or convention or association of churches.”
The new definition solved both problems with the definition in ERISA, but it did not annul the requirement that a plan be established by a church in order to qualify for church plan exemption, the court said. Prior to 1980, a plan had to be established and maintained by a church. After 1980, a plan had to be established by a church, but could be maintained by a church agency. For church plan exemption, there are two requirements—establishment and maintenance—and only the maintenance requirement is expanded by the use of the word “includes,” the court said.
NEXT: St. Peter’s testimony concedes to court’s logic
According to the court opinion, St. Peter’s essentially conceded to this logic when presented with this example during oral argument: Congress passes a law that any person who is disabled and a veteran is entitled to free insurance. In the ensuing years, there is a question about whether people who served in the National Guard are veterans for purposes of the statute. So, to clarify, Congress passes an amendment saying that, for purposes of the provision, “a person who is disabled and a veteran includes a person who served in the National Guard.” Asked if a person who served in the National Guard but is not disabled qualifies to collect free insurance, St. Peter’s responded that such a person does not because only the second of the two conditions was satisfied.
The court noted that Congress could have said that a plan “established and maintained” by a church includes a plan “established and maintained” by a church agency, but it didn’t. In addition, the 3rd Circuit has noted before that ERISA is a “remedial” statute that should be “liberally construed in favor of protecting the participants in employee benefit plans.” Excluding plans established by church agencies would take a large number of employees outside the scope of ERISA protections.
As for the history of Internal Revenue Service (IRS) private letter rulings have held that a church-related agency can establish its own church plan, St. Peter’s pointed to a 1983 IRS memorandum stating the agency’s position. The court said such things that are not formal notice-and-comment rulemaking are only owed deference to the extent they have the power to persuade, and the memorandum lacks the power to persuade because it does not even consider the church establishment requirement, but “skips directly (and inexplicably) to Section 3(33)(C).” The court concluded, “Because the IRS’ position is at odds with the statutory text, we owe it no deference.”
The opinion in Kaplan v. St. Peter’s Healthcare System is here.