Ask the Experts December 22, 2009

(b)lines Ask the Experts – Church 457(b) Plans

 December 22, 2009 (PLANSPONSOR (b)lines) – A plan provider notes: "If a nonelecting church, non-ERISA 414(e) organization sponsors an eligible 457(b) plan, it appears that this plan can be offered to all employees, rather than limited to a top hat group, since the plan is not subject to ERISA. However, 457(a) requires all non-governmental 457(b) plans assets to be unfunded."

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The provider asks: “Since the employer is exempt from ERISA, does this requirement apply to the 414(e) religious organization? Is the plan considered funded or unfunded? In addition, in general, do the 457(b) rules applicable to governmental plans or top hat plans apply – i.e. rollovers, age 50 catch-up, assets protected from the 414(e) organizations, plan loans?”

David Powell, Groom Law Group, answers:

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First, note that many church organizations are not employers eligible to maintain a 457(b) plan.  (See Code section 457(e)(13)).  Only tax exempt organizations which are NOT churches or qualified church controlled organizations under Code section 3121(w)(3)(A) and (B) (usually, church hospitals, colleges, universities and nursing homes) may maintain 457(b) plans. 

Because such plans are exempt from ERISA as church plans, they need not be top hat.  But if funded, they will run afoul of the constructive receipt/economic benefit rules and will be immediately taxable to the participants.  Consequently, most use, at most, a rabbi trust where the assets are exposed to creditors of the employer.  And they do not get the benefit of the rules applicable only to governmental plans, so no age 50 catch-up, no loans, and distributions are not eligible rollover distributions.  They are essentially like other tax exempt organization 457(b) plans, just not limited to the top hat group.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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Benefits December 21, 2009

Sponsors Continue Trend of Earlier DC Plan Eligibility

December 21, 2009 (PLANSPONSOR.com) – Employers are not only urging employees to join their retirement savings plans, but a new study indicates more companies are allowing workers to get started right away.

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A news release from the Profit Sharing/401k Council of America (PSCA) said its latest eligibility survey for defined contribution plans found 57.4% of plans surveyed allow immediate 401(k) participation – more than twice the 24% from 1998. Some 15.4% had a three-month eligibility period, while 9.4% used six months.

Some 71.1% of plans with 1,000 or more workers now permit employees to get in their 401(k) right after they have been hired.

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PSCA said 75.8% of companies (and 85.5% of firms with 1,000 or more workers) allow employees into the plan after 90 days. Only 11.5% of all plans have a one-year or longer service requirement prior to eligibility.

The news release said 72.3% of the plans surveyed offer employer matches while 56.1% of companies make non-matching contributions to employee accounts.

Company Match Eligibility  

In 2009, only 28.5% of companies required a year of service or longer for matching contribution eligibility, 13% required three months, and 11.3% required six months. Forty-seven percent of employers required one-year or more to be eligible for non-matching company contributions, and 13.6% required six months or more.

PSCA said 40.7% offer immediate match eligibility in 2009, up from 35.8% four years earlier, while 21.3% use immediate eligibility for non-matching contributions in 2009, up from 17.1% four years earlier.

In terms of company size, companies with 1,000 to 9,999 workers had the highest percentage of a 90-day eligibility or less for a company match at 67.6%, while those with 10,000 or more workers were next at 61.2%.

The PSCA poll gathered eligibility data from 494 companies on participant deferrals, matching company contributions, and non-matching company contributions.

The PSCA 2009 report is available here.

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