401(m) testing

[Guest Madalyn Clark]

Are non-electing church plans subject to 401(m) testing?

[Guest Danny Miller]

It depends on the kind of church retirement plan you have. Section 403(B) plans maintained by churches and certain church related organizations ("qualified church controlled organizations" defined in Code section 3121(w))are not subject to any nondiscrimination or coverage requirements. Section 403(B) plans maintained by church related hospitals or colleges/universities are subject to such rules, including section 401(m).

Church qualified section 401(a) plans are subject to section 401(m) if matching or employee contributions are made to the plan. Hope this helps.

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Danny Miller

Conner & Winters

1050 17th St., N.W.

Suite 810

Washington, D.C. 20036

(202) 783-5711

dmiller@cwlaw.com

[MWeddell]

It'd be great if someone could confirm again that church 403(B) plans are subject to 401(m) testing. My client is a religious order that administers a college and health care facilities, so it does not meet the narrow definitions of a church or a qualified church-controlled organization under Code Sections 3121(w)(3). It looks other types of Code Section 414(e) church plans that sponsor 403(B) plans do have to comply with 401(m) testing.

As best as I can tell, IRS Notice 2001-9 does not affect this conclusion. It extended the deadline for complying with regulations under sections 401(a)(4), 401(a)(5), 401(l) and 414(s). If the IRS intended to extend the deadline for 401(m), it would have expressly listed 401(m). Compare Sections III(A) and III(B) of Notice 96-64 for example. [Even if (contrary to my belief), Notice 2001-9 applies, it only delays the effective date of the regulation and the plan would still have to comply with a reasonable, good faith interpretation of 401(m) anyway.]

Can anyone confirm for me that yes, my client would need to do 401(m) testing on the match in its 403(B) plan? It would also be subject to 410(B) testing as well.