Guest Patrick Foley

Must ALL Church 403(b)'s have Plan documents?

8 posts in this topic

Prior to the final 403(b) regulations a church could simply permit employees to request that a portion of their compensation be deferred into a 403(b) vehicle of their choice; no plan was created.

Initially I read the final 403(b) regs as preserving that rule for annuity contracts and 403(b)(7) accounts for church employees, notwithstanding the material requiring a plan document for retirement income accounts in Treas. Reg. 1.403(b)-9. Treas. Reg. 1.403(b)-3(b)(3)(iii) subjects church 403(b) contributions to the "plan in form and operation" rules only if they are retirement income accounts.

Treas. Reg. 1.403(b)-9 requires a plan document that states the intent to constitute a retirement income account. I assumed that a church's failure to have a plan document meant that no retirement income accounts were created, but so long as the accounts are annuity contracts or 403(b)(7) accounts, that is no problem.

But now it has occurred to me that another interpretation of the new regulations is possible -- church 403(b) accounts MUST be retirement income accounts, and the failure to have a plan document identifying them as such means that they don't qualify as 403(b) accounts at all.

That interpretation doesn't seem reasonable to me, and Treas. Reg. 1.403(b)-3(b)(3)(iii) argues against it. But, having seen that possibility, I'd like to know how others have interpreted these provisions.

Thank you.

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Prior to the final 403(b) regulations a church could simply permit employees to request that a portion of their compensation be deferred into a 403(b) vehicle of their choice; no plan was created.

Initially I read the final 403(b) regs as preserving that rule for annuity contracts and 403(b)(7) accounts for church employees, notwithstanding the material requiring a plan document for retirement income accounts in Treas. Reg. 1.403(b)-9. Treas. Reg. 1.403(b)-3(b)(3)(iii) subjects church 403(b) contributions to the "plan in form and operation" rules only if they are retirement income accounts.

Treas. Reg. 1.403(b)-9 requires a plan document that states the intent to constitute a retirement income account. I assumed that a church's failure to have a plan document meant that no retirement income accounts were created, but so long as the accounts are annuity contracts or 403(b)(7) accounts, that is no problem.

But now it has occurred to me that another interpretation of the new regulations is possible -- church 403(b) accounts MUST be retirement income accounts, and the failure to have a plan document identifying them as such means that they don't qualify as 403(b) accounts at all.

That interpretation doesn't seem reasonable to me, and Treas. Reg. 1.403(b)-3(b)(3)(iii) argues against it. But, having seen that possibility, I'd like to know how others have interpreted these provisions.

Thank you.

Perhaps the question relates to a "written plan document". Seems clear that the regs suggest that there is always a plan, whether it is written down in a singular manner or is composed of multiple documents that together define the plan. I'd rather define the plan succinctly, therefore in writing and in one document, than have an outside body determine my plan based on a variety of documents. Almost a "best practices" issue rather than a "do we have to" issue.

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I agree. When looking at Treas. Reg. §1.403(b)-3(b)(3)(iii) it appears to exempt churches from a written plan (form) unless they use retirement income accounts.

edit: typos

edited later to add: I don't think it requires church 403(b) plans to only use retirement income accounts.

Edited by J4FKBC

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Prior to the final 403(b) regulations a church could simply permit employees to request that a portion of their compensation be deferred into a 403(b) vehicle of their choice; no plan was created.

Initially I read the final 403(b) regs as preserving that rule for annuity contracts and 403(b)(7) accounts for church employees, notwithstanding the material requiring a plan document for retirement income accounts in Treas. Reg. 1.403(b)-9. Treas. Reg. 1.403(b)-3(b)(3)(iii) subjects church 403(b) contributions to the "plan in form and operation" rules only if they are retirement income accounts.

Treas. Reg. 1.403(b)-9 requires a plan document that states the intent to constitute a retirement income account. I assumed that a church's failure to have a plan document meant that no retirement income accounts were created, but so long as the accounts are annuity contracts or 403(b)(7) accounts, that is no problem.

But now it has occurred to me that another interpretation of the new regulations is possible -- church 403(b) accounts MUST be retirement income accounts, and the failure to have a plan document identifying them as such means that they don't qualify as 403(b) accounts at all.

That interpretation doesn't seem reasonable to me, and Treas. Reg. 1.403(b)-3(b)(3)(iii) argues against it. But, having seen that possibility, I'd like to know how others have interpreted these provisions.

Thank you.

If the church purchases a (b)(1) annuity contract or a (b)(7) custodial account, no plan document is required. If a church wants a plan to be a (b)(9), it is subject to a plan document requirement, and the plan document must say that the church intends it to be a (b)(9). In other words, all church 403(b)s do not have to be (b)(9)s. In fact, only those that say they are, in writing, and otherwise meet the plan document requirements, are (b)(9)s. Hope this helps.

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Danny, you stated:

"If the church purchases a (b)(1) annuity contract or a (b)(7) custodial account, no plan document is required."

May I ask what your source is for the above information? To be more specific regarding our situation. Currently we simply send employer benefit contributions and employee tax deferred contributions to a 403(b)7 account with a financial institution. Am I reading your response correctly to say no plan document is required? I ask about the source because everything that I am reading so far seems to assume a plan document is required. Thanks in advance.

Dan

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Regs. 1.403(b)-3(b)(3)(iii) says "This paragraph (b)(3) applies to contributions to an annuity contract by a church only if the annuity is part of a retirement income account, as defined in §1.403(b)-9." "This paragraph" is the written plan requirement.

Tom Geer

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Patrick

I get the feeling that your concern is caused by your definition of "retirement income accounts" hence your phrasing " church 403(b) accounts MUST be retirement income accounts ".

The amounts set aside in 403(b) accounts are for retirement income but are not necessarily held in retirement income accounts.

Retirement income accounts are just an alternative savings vehicle to annuities and mutual funds.

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Bob Architect has a FAQ column on the IRS website. It says that:

Churches that sponsor 403(b)s where the obligation to either establish the 403(b) or amend the 403(b) plan itself is an outcome of a church convention. So merely because a 403(b) is sponsored by a church does not, in and of itself, mean that it’s going to experience a delayed effective date but rather, where the authority to amend or establish the plan would be with the church convention.

First, what exactly is a "church convention" ( Note, I am about to research this on my own, but any advice would be much appreciated.)

Second, I represent several stand alone legitmate churches and synagogues that have a 403(b) annuity and/or custodial arrangements for their employees, who for the most part are not members of the clergy. Is a written document required for these arrangements effective as of 1/1/09?

Thanks.

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