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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."
Reported by PS
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:
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.
