IRS Cites Additional Supreme Court Guidance in Granting Church Plan Status

The IRS has issued a private letter ruling (PLR) granting church plan status to an entity’s retirement plan using additional guidance provided by the U.S. Supreme Court’s decision in Advocate Health Care Network v. Stapleton.

The IRS has ruled on whether the entity is a church plan under Section 414(e) of the Internal Revenue Code, which coincides with Section 3(33) of the Employee Retirement Income Security Act (ERISA).

The agency explains that Section 414(e)(1) of the Internal Revenue Code generally defines a church plan as a plan established and maintained for its employees (or their beneficiaries) by a church or a convention or association of churches which is exempt from taxation under Section 501. Section 414(e)(2) provides, in part, that the term “church plan” does not include a plan that is established and maintained primarily for the benefit of employees (or their beneficiaries) of such church or convention or association of churches who are employed in connection with one or more unrelated trades or businesses.

The agency goes on to explain that Section 414(e)(3)(B) generally defines “employee” of a church or a convention or association of churches to include a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry, regardless of the source of his or her compensation, and an employee of an organization, whether a civil law corporation or otherwise, which is exempt from tax under Section 501, and which is controlled by or associated with a church or a convention or association of churches.

Section 414(e)(3)(A) provides that a plan established and maintained for its employees (or their beneficiaries) by a church or a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches. In this regard, the IRS notes that the U.S. Supreme Court in Advocate Health Care Network v. Stapleton held that a plan that is maintained by an organization described in Section 414(e)(3)(A) may be a church plan under Section 414(e) even if it was not established by a church or a convention or association of churches.

In order for an organization that is not itself a church or convention or association of churches to have a qualified church plan, it must establish that its employees are employees or deemed employees of a church or convention or association of churches under Section 414(e)(3)(B) by virtue of the organization’s control by or association with the church or convention or association of churches, the IRS says. Employees of any organization maintaining a plan are considered to be church employees if the organization: (1) is exempt from tax under Section 501; and (2) is controlled by or associated with a church or convention or association of churches. In addition, in order to be a church plan, the administration or funding (or both) of the plan must be by an organization described in Section 414(e)(3)(A). To be described in Section 414(e)(3)(A), an organization must have as its principal purpose the administration or funding of the plan and must also be controlled by or associated with a church or convention or association of churches.

The entity that requested the PLR is a non-profit corporation that is exempt from federal income tax under Section 501(a) as an organization described in Section 501(c)(3). The primary purpose of the entity is to provide an array of services that include housing, day programs, employment support, faith support, camps and education in the “Denomination A” doctrines. The entity has been certified as a related organization under “Program by Church,” a “Denomination A” church, which allows it to issue calls for ordained and commissioned ministers on the church’s roster, use the church logo, apply for certain loans, seek grants, and participate in the church’s health plan and the church’s group purchasing agreement. The entity regularly calls certain members of the church to support certain roles in its administration. It is governed by a board of directors; at least 40% of the board has to consist of members of the church.

Based on these facts, the IRS concluded that the entity is associated with a church or convention or association of churches for purposes of section 414(e).

The entity represented that none of the eligible participants in its retirement plan are employed in connection with a for-profit entity or one or more unrelated trades or businesses of the entity within the meaning of Section 513. So, the IRS concluded that the employees of the entity are deemed to be employees of a church or a convention or association of churches by virtue of being employees of an organization which is exempt from tax under Section 501 and which is controlled by or associated with a church or a convention or association of churches.

The entity also represented that “Committee P” is the plan administrator of the retirement plan, and its sole purpose is to administer the benefits of the plan, manage the funds available for investment in a prudent manner, and take such steps as are necessary to maintain the plan as a qualified plan. “Committee P” consists of the treasurer, president and CEO of the entity, as well as one to three directors appointed by the chairman of the board. “Committee P” responds directly to the entity’s board of directors during meetings.

“We thus conclude that Committee P is controlled by or associated with the church,” the IRS stated. “Accordingly, ‘Plan X’ is maintained by an organization that is controlled by or associated with a church or a convention or association of churches, the principal purpose or function of which is the administration of ‘Plan X’ for the provision of retirement benefits for the deemed employees of a church or a convention or association of churches.”

Based on all the facts and representations, the agency concluded that the entity’s retirement plan is a church plan within the meaning of Section 414(e). It pointed out that the letter is directed only to the entity that applied for it.