Compliance May 12, 2015

Courts Split on Definition of Church Plan

A recent decision in Maryland leaves U.S. district courts evenly split on cases challenging retirement plans’ “church plan” status under the Employee Retirement Income Security Act.
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The U.S. District Court for the District of Maryland has issued an order granting partial dismissal of claims against Trinity Health Corporation challenging the “church plan” status of its retirement plan for employees.

The court says it holds that the Employee Retirement Income Security Act (ERISA) permits an organization that is “controlled by or associated with a church or convention of churches” to establish a “church plan.” The ruling evenly splits district court findings in six circuits, with half finding as the Maryland court did in Lann v. Trinity Health Corporation, and half finding that only a church may establish a “church plan.”   

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Lawyers for Trinity Health argued that ERISA Section 3(33) subsection (A) states “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.” Subsection (C)(i)’s introduction then repeats the same language on what a “church plan” means, and after repeating the definition of “church plan” contained in subsection (A), subsection (C)(i) then states that such a plan includes a plan maintained by an organization (whether a civil law corporation or otherwise); (i) whose principal purpose or function is the administration or funding of the plan; and (ii) which is controlled by or associated with a church or a convention or association of churches. Subsection (A) thus exempts plans of churches, while subsection (C)(i) exempts plans of church-affiliated organizations.

In their argument, the attorneys say even if the “church plan” exemption were found ambiguous, the court should defer to the long-standing interpretation of federal agencies.

In addition, Trinity’s lawyers note that ERISA Section 3(33) Subsection (D) provides that if a plan fails to meet “one or more of the requirements of [ERISA § 3(33)],” the plan is entitled to a correction period to fix the defect. If a correction is made timely, the plan is deemed to meet “church plan” status “for the year in which the correction is made and all prior years.” According to the attorney’s this statutory right to retroactive correction means a court should resolve “church plan” status conclusively (and permit corrections) before considering any ERISA claims.

According to an FYI publication from Buck Consultants at Xerox, the three cases finding against “church plan” status for the defendants have appealed to the 9th, 3rd, and 7th Circuits. The Overall v. Ascension Health case, in which a district court found Ascension Health’s plan qualified as a “church plan” under ERISA, was appealed to the federal appellate court, but has been returned to the district court to consider a proposed settlement between the parties. More cases have been stayed pending appellate court decisions.

Data & Research May 12, 2015

Intuitive Design Boosts 401(k) Wellness Scores

An even simpler enrollment process helped drive up retirement plan participation rates and positive participant behaviors, according to Bank of America Merrill Lynch.
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Automation, mobility and advice are strengthening employee participation in workplace benefit plans, according to the 2015 Bank of America Merrill Lynch 401(k) Wellness Scorecard, with nearly two-thirds more Millennials participating in a 401(k) plan in 2014 than in the previous year.

The previous scorecard showed an energized attitude about saving, particularly among Millennials, and a rise in the use of mobile access, auto features in 401(k) plans and more personalized advice.

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Plan sponsors are increasingly interested in helping their employees make informed financial decisions, says Daniel Holtzman, managing director and head of institutional retirement products at Bank of America Merrill Lynch. In response, providers seek ways to support retirement plan goals, such as the bank’s Express Enrollment.

The program is a way to onboard participants quickly and easily, with a stripped-down number of questions. “It gets to the essence of how to get someone to sign on,” Holtzman tells PLANADVISER, with direct questions about what percentage to contribute. “The percentage of people who complete the process is much higher than through a traditional enrollment, and it’s a win-win for companies looking to provide for the financial wellness of their participants.”

The scorecard shows a 119% increase in employer adoption of the Express Enrollment program, and a similar reception from participants. Seventy-nine percent of employees enrolled through Express Enrollment, compared with 55% of those that were offered a traditional enrollment method.

The BofA Scorecard found other examples of simplification leading to increases in participation rates, including:

  • 64% of 401(k) plans combined auto enrollment and auto increase, a 25% rise compared with one year earlier;  
  • Auto enrollment drove participation rates that were 32% higher;
  • 46% more participants scheduled auto increases; and
  • 78% of participants who made a change to their plan made a positive one, either starting or boosting contributions.

The scorecard shows a continued strong correlation between increasing retirement savings and annual health care enrollment, Holtzman notes. In the second half of 2014, the report found a 104% increase in positive actions among new enrollees compared with the first half of the year, and a 98% increase in positive actions during the same time period.

“The one big change we’re starting to see is the rise in health care and thinking about health care and health saving accounts,” Holtzman says, “and the role it plays in people’s choices.” A substantial trend in benefits programs is the number of large companies moving into high-deductible health care plans, he observes, which is beginning to make its way into middle-market plans.

Next: Health care will attract as much interest as the 401(k).  

Participants’ Responsibility

Holtzman believes the industry is coming to a turning point where health care will reach the same level of interest that 401(k) plans began to see in the 1980s. “Employers and participants are starting to think about the role of health and health savings accounts,” he says, predicting the role of health savings accounts and health care benefits will experience massive growth. 

The interest in health care is still in its early stages, Holtzman says, noting that Millennials are going to find themselves being made increasingly responsible for their health care as they age, and will becoming increasingly interested in learning more about their health care needs.

As more Americans move into high-deductible health care plans, Holtzman forecasts two different conversations about what this means for participants. First, health care is a health product, he points out, and there will be a lot of talk about how to get the best medical care at the best price. In the defined contribution (DC) plan space, people will begin to think about planning for their medical costs in retirement and whether they are building the right savings. “It will unleash huge demand for consumer knowledge of the financial and health aspects of medical savings,” he says.

The report reveals that a substantial majority of plan sponsors (83%) feel a sense of responsibility for employees’ financial wellness and are tailoring financial education offerings to better meet the needs of their employees. At the same time, employees are taking more advantage of the financial education being offered. Meetings with Bank of America Merrill Lynch educational specialists increased by 14% from the same period a year earlier, and the Retirement Education Services phone center offering employees consultation and support had an 18% increase in calls over the same period.

For employee engagement of benefits, the 401(k) Wellness Scorecard also finds:

  • 6% more employers offer Advice Access, a professional saving and investment advice service tailored to the employee’s individual situation;
  • 91% of employees enrolled in Advice Access are using the managed account feature;
  • Visits to the bank’s online mobile site rose 46% year over year; and
  • Visits to the online education center have increased by 15% percent.

Holtzman cites editing as the key to a successful plan and simple plan design. “How do I make it easy for my participants to enroll in the first place?” he asks. Design should be intuitive, ask the right questions and offer simple choices. “Behavioral finance has found that human beings are well-designed to look at three options and make one choice. If you look at 25 choices, you walk away. A lot of success depends on demystifying the complexity of a 401(k) plan.”

The Bank of America Merrill Lynch 401(k) Wellness Scorecard is a biannual survey of behavior trends based on 2.5 million employees at companies with financial benefit plans serviced by Bank of America Merrill Lynch.

More information about the scorecard is on the website of Bank of America Merrill Lynch.

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