ERISA Exemptions for Church Plans: What Your Benefits Broker Should Know

A benefit plan that satisfies the federal definition of a church plan is generally excluded from ERISA unless a valid election applies. An organization’s religious identity alone does not decide the plan’s status, and separate ACA and other federal or state duties may still apply.

Confusing those two things is the most expensive mistake we see church administrators make — and it’s a mistake that happens at the advisor level too, not just the administrator level.

ERISA exemption means your church plan isn’t subject to Form 5500 filings, federal COBRA, or ERISA fiduciary standards. It does not mean you can skip ACA reporting, ignore the employer mandate, or stop worrying about compliance. And if your broker is advising you as though ERISA applies when it doesn’t — or as though the exemption covers more than it does — you’re either overpaying for compliance you don’t need, or missing obligations you can’t afford to miss.

What ERISA Section 3(33) Actually Says

ERISA — the Employee Retirement Income Security Act of 1974 — governs most employer-sponsored benefit plans in the United States. It sets rules for fiduciary responsibility, reporting, disclosure, and claims procedures.

But Section 3(33) carves out a specific exemption for “church plans.” If your organization qualifies, your benefit plans are not subject to ERISA unless you voluntarily elect coverage.

To qualify, the plan must be established and maintained by a church or a convention or association of churches. The definition also extends to organizations controlled by or associated with a church — which is where things get complicated. A church-run school, a denominational camp, or a ministry organization may qualify. A faith-based nonprofit with no formal church affiliation probably doesn’t.

The key question isn’t whether your organization has a religious mission. It’s whether there’s a structural connection to a church or denomination. That distinction trips up a lot of organizations — and a lot of advisors.

What the Exemption Covers (and What It Doesn’t)

When a church plan is exempt from ERISA, several major compliance obligations fall away:

No Form 5500 filing. Most employer-sponsored plans with 100 or more participants must file an annual Form 5500 with the Department of Labor. Church plans don’t.

No ERISA fiduciary standards. ERISA imposes strict fiduciary duties on plan administrators — prudent management, duty of loyalty, diversification requirements. Church plans aren’t bound by these federal standards. (Though state law and common sense still apply. You still owe your staff responsible plan management.)

No federal COBRA. This is the one that surprises people. ERISA-exempt church plans are not subject to federal COBRA continuation coverage requirements. If you’ve been administering COBRA because your broker told you to, you may be doing work you don’t need to do.

This matters particularly for Michigan churches. Michigan does not have a state mini-COBRA law that fills this gap. Some states do. In Michigan, if your church plan is ERISA-exempt, there may be no continuation coverage requirement at all — unless your plan documents voluntarily include one. That’s worth understanding, because it affects how you handle departing employees.

Different claims procedures. ERISA sets detailed rules for how benefit claims must be processed and appealed. Exempt church plans aren’t bound by those federal rules, though your plan should still have clear, fair procedures. Your staff deserve a transparent process even without a federal mandate requiring one.

Here’s what this means for your organization: if you’re paying for ERISA compliance services, ERISA audit preparation, or ERISA-specific claims administration and your plan is exempt, you’re spending money you don’t need to spend.

The Mistake That Costs Churches the Most

The single most common error we see is this: church administrators (or their brokers) assume that ERISA exemption means ACA exemption.

It doesn’t. Not even close.

The Affordable Care Act’s employer mandate operates independently from ERISA. If your church employs 50 or more full-time equivalent employees, you are an Applicable Large Employer under the ACA — regardless of your ERISA status. That means:

• You must offer affordable minimum essential coverage to full-time employees
• You must file Forms 1094-C and 1095-C with the IRS
• You face potential penalties under Section 4980H if you don’t comply

This catches larger churches off guard, especially those with schools, daycares, or multiple ministry programs. A church with 15 staff members and a school with 40 employees? That’s potentially 55 full-time equivalents — and full ACA obligations.

This is where church benefits get specialized. Many advisors either treat your church like any other employer (applying ERISA rules that don’t belong) or they hear “church exemption” and assume it covers everything. It covers ERISA. It does not cover the ACA.

Who Actually Qualifies — and Who Doesn’t

This is where classification matters. ERISA Section 3(33) requires a structural relationship with a church. The Supreme Court clarified the scope of this definition in Advocate Health Care Network v. Stapleton (2017), ruling unanimously that a plan need not be established by a church itself — an organization controlled by or associated with a church can both establish and maintain a church plan. That decision broadened eligibility significantly. Here are three common scenarios:

A church with a K-12 school. The school is operated by the church — a common structure for Reformed and Christian school communities across West Michigan — governed by the church’s board, and shares the church’s tax-exempt status. The school employees are generally covered under the church plan definition. This qualifies.

A church with a licensed daycare. Same analysis — if the daycare is controlled by and associated with the church, employees typically fall under the church plan. But if the daycare is a separately incorporated entity with its own board and no formal church governance, the answer may be different.

A standalone ministry organization. A parachurch ministry, a faith-based counseling center, or a Christian nonprofit — these organizations have a religious mission, but they may not be “controlled by or associated with” a church in the way Section 3(33) requires. Getting this wrong means assuming an exemption that doesn’t exist.

Minister classification adds another layer. A worship director who preaches occasionally may qualify as a minister for tax purposes even without the formal title — and that changes how you structure their benefits. The details of clergy dual tax status, housing allowance eligibility, and benefit structuring deserve their own conversation, and we cover them in depth in our post on the Minister’s Housing Allowance.

How the Exemption Interacts with Modern Plan Types

ICHRA (Individual Coverage Health Reimbursement Arrangement). A church can offer an ICHRA without ERISA complications. Since the church plan exemption applies, the ICHRA doesn’t carry the same federal regulatory burden it would for a secular employer. But the ACA integration rules still apply — employees receiving ICHRA dollars must enroll in individual market coverage.

Level-funded plans. These are growing fast among small employers, including churches. A level-funded arrangement offered as part of a church plan would generally be ERISA-exempt, meaning fewer reporting requirements and more flexibility in plan design.

Self-funded plans. Same principle — the church plan exemption removes the ERISA overlay, but state insurance regulations may still apply depending on how the plan is structured.

Denominational plans. Many West Michigan churches in the Reformed tradition work with the Reformed Benefits Association. Southern Baptist churches may use GuideStone. Presbyterian churches have the Board of Pensions. These denominational plans often operate as church plans by definition, and they come with administrative infrastructure that accounts for the ERISA exemption. If you’re evaluating whether to stay with a denominational plan or move to commercial insurance, the compliance picture should be part of that decision.

When Voluntary ERISA Coverage Makes Sense

This might surprise you: sometimes a church should elect ERISA coverage voluntarily.

Why would you opt into a regulatory framework you’re exempt from? A few reasons:

ERISA preempts state law. If your church operates in multiple states or has employees in different jurisdictions, ERISA coverage gives you one federal standard instead of a patchwork of state regulations.

Fiduciary protections can help your leadership. ERISA’s fiduciary framework, while demanding, also provides a clear structure for plan governance. For churches with large staffs and significant benefit expenditures, that structure can protect board members and administrators.

Some vendors and carriers expect it. Certain stop-loss carriers and plan administrators are built around ERISA compliance. Operating outside that framework can limit your options or increase costs in ways that offset the compliance savings.

This isn’t a decision to make based on a blog post. But it’s a decision your benefits advisor should be able to walk through with you — and it requires specific experience with church plan compliance to do it well.

What Church Administrators Should Do Now

First, confirm your classification. Does your organization meet the Section 3(33) definition of a church plan? If you’re not sure, get a clear answer before making compliance decisions.

Second, audit your current compliance. Are you filing Form 5500 when you don’t need to? Administering COBRA when you’re exempt? Paying for ERISA-specific services that don’t apply to your plan?

Third, separate ERISA from ACA. Make sure your ACA obligations are being met independently. If you’re at or near 50 full-time equivalents, this is not optional.

Fourth, talk to an advisor who knows the difference. Not every benefits advisor understands church plans. The right one should be able to explain what applies to your organization, what doesn’t, and where the real compliance risks sit — without defaulting to the same playbook they use for every other employer.

If your current advisor can’t explain the difference between ERISA exemption and ACA exemption without checking their notes, that tells you something.

Every church’s compliance picture is different — from 10-person congregations to multi-campus organizations with schools, daycares, and mission programs. Getting it wrong is expensive. Getting it right starts with knowing what actually applies to you.

If you’re not sure whether your current advisor understands church plan exemptions, that’s a conversation worth having.

Nexus Benefit Solutions is an independent benefits advisory firm in Grand Rapids, Michigan, specializing in churches, ministries, nonprofits, and small-to-midsize employers. Our advisors will take the time to discuss your situation in detail. Schedule a call — no pitch, just clarity.

Primary sources for church-plan status: IRS church-plan guidance and U.S. Department of Labor Form 5500 resources. A qualified legal adviser should apply current federal and state law to the organization and plan.