Churches Seek Clarification for Which Entities Can Adopt Pre-Approved Plans

In December 2018, chief executive officers of Church Alliance member organizations submitted letters to key Congressional leaders urging resolution of an important policy issue facing members’ retirement programs.

According to the Church Alliance, the issue relates to the recent position taken by the Treasury Department and IRS, under which certain church-affiliated organizations are barred from sponsoring church retirement income account plans offered under section 403(b)(9) of the Internal Revenue Code. PLANSPONSOR has learned that the “position” the letter refers to was an informal position by the IRS, as they told entities that had submitted 403(b)(9) volume submitter plans for an opinion letter that they would not allow for inclusion of non-qualified church-controlled organizations (non-QCCOs).

The informal position is indicated by the IRS excluding mention of non-QCCOs from the ability to rely on pre-approved plans. On its website, the IRS says churches and qualified church-controlled organizations (QCCOs) may rely on a 403(b) prototype plan’s opinion letter regardless of whether the plan is a standardized or nonstandardized plan conditioned on the adopting employer’s accurate representations that it is a church or qualified church-controlled organization.

PLANSPONSOR also learned that after legislation was introduced addressing clarification of retirement income account rules relating to church-controlled organizations, the IRS said they would no longer say it was not permissible for inclusion of non-QCCOs in pre-approved plans, but under their discretion in what they allow for pre-approved plans, they would still not issue a letter if the plan allowed it. 

“The recent Treasury Department and IRS position disregards more than 30 years of practice, precedent, and clear statutory language. As a result, employees of church-related nursing homes, daycare centers, summer camps, preschools, colleges, universities, hospitals, and other social service organizations stand to lose access to the unique plan features they have come to depend upon in these church plans,” one letter says. The letters encourage lawmakers to pass the clarifying legislation.

This issue for 403(b) plans is similar to the issue brought by lawsuits against mostly health care organizations challenging the church plan status of their defined benefit (DB) plans.