(b)lines Ask the Experts – Can Church 401(k) Plans Be Merged With 403(b) Plans?

David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: 

It is indeed true that church 401(a) and 401(k) plans can now be merged with 403(b) plans, with one major caveat. The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) added a new Code Section 414(z) that permits mergers of church 401(a) and 401(k) plans with 403(b) plans so long as the accrued benefit of each participant is a) the same or greater than it was prior to the merger and b) nonforfeitable after the merger.

However, the Act directed the Secretary of the Treasury to issue rules as to how to complete such mergers, and Treasury has yet to issue such guidance. Without such guidance, churches that attempt to implement such mergers at the present time, though technically permitted by the PATH Act, run the risk of noncompliance with any future Internal Revenue Service (IRS) guidance that may be issued.

Of course, as with any transaction of this magnitude, counsel with specific expertise in church plans should be consulted prior to taking any action.   

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.