Effect of Churches Accidentally Filing Form 5500

“I work with church secondary school that accidentally filed a Form 5500 in 2018. Furthermore, they did not attach an audit report, even though the plan has over 100 participants, nor did they state that the plan maintained a fidelity bond, since the plan does not maintain such a bond. Are there any consequences to this action taken by the school? Will they now need to secure plan audits and a fidelity bond?”

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

First of all, it appears that the organization you described satisfies the definition of a “church” under 3121(w)(3)(A), as that definition includes “an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches.” However, this fact should be confirmed with counsel well-versed in such church plan determinations, as church plan status is an issue that is has been increasingly subject to legal challenges.

Having said this, as discussed in a prior Ask the Experts column, under current law, a church plan does not inadvertently elect Employee Retirement Income Security Act (ERISA) coverage under Code section 410(d) merely by filing a Form 5500. The only way the regulations indicate that a church plan can elect to be covered under ERISA is for a church plan sponsor to attach a written statement to either the Form 5500 that is filed for the first plan year for which the election is effective or a written request for a determination letter relating to qualification of the plan. Church plans cannot elect ERISA coverage in any other fashion, making “inadvertent” coverage essentially impossible.

In addition, since ERISA coverage cannot be elected by mistake, none of the other provisions of ERISA would apply to a non-electing church plan, either. This includes the provisions of ERISA which would require an audit for large plans, as well as the provision requiring a fidelity bond.

A couple of other points are worth making, though. First, keep in mind that litigation against church plans remains ongoing, so it is possible that a plaintiff might challenge whether the church plan definition has actually been met. Second, unless a letter is sent to the usual address where the 5500 is filed indicating that the plan is a church plan and will no longer be filing 5500s, the plan sponsor may continue to get notices from the IRS asking why they have not filed.

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.