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Start Up Church Plan


Guest Bizitchie
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Guest Bizitchie

Church plans are not my area of expertise, so I have a few questions. I have a start up, which only wants to include the 2 full time pastors and not include the 3 other employees who work 20 hours or less per week. Can this be done? I wouldn't think so if we set up a 401(k), but what about a 403(b)? If we can do this under a 403(b), would we be required to have a plan document? Any suggestions?

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If the sponsor is truly a church, then they are exempt from the nondiscrimination rules. They can cover anyone they choose, as long as the document is drafted properly to keep them exempt from these rules.

If the church sets up a 403(b) plan, and they only allow investments in mutual funds and/or annuities, then they are also exempt from the written plan requirement.

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  • 2 weeks later...

Read below, where "form" means the written language. The escape from the document requirement is in Treas. Reg. §1.403(b)-3(b)(3)(iii), and it only lets you out if you are not using retirement income accounts.

§1.403(b)-3 Exclusion for contributions to purchase section 403(b) contracts...

(b)(3) Plan in form and operation. (i) A contract does not satisfy paragraph (a) of this section unless it is maintained pursuant to a plan.

...

"(iii) 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."

Does that help?

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Before too quickly assuming that a written plan might not be needed, remember that those who operate a plan under an assumption that it is a church plan should want some comfort that it really is a church plan. (If not an EBSA Advisory Opinion or IRS leter ruling, some rely on a lawyer's opinion or advice.) Among the commonly recognized elements for a church plan is that the plan must be administered by a right governing authority of the church (rather than a subunit). It's difficult to feel comfortable about such a fact without at least one document stating these provisions. This matters because administering a plan assuming an absence of ERISA requirements runs some liability risks (not only for fiduciaries, but also for service providers) if one guesses wrong about whether ERISA governs the plan.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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  • 4 months later...
Before too quickly assuming that a written plan might not be needed, remember that those who operate a plan under an assumption that it is a church plan should want some comfort that it really is a church plan. (If not an EBSA Advisory Opinion or IRS leter ruling, some rely on a lawyer's opinion or advice.) Among the commonly recognized elements for a church plan is that the plan must be administered by a right governing authority of the church (rather than a subunit). It's difficult to feel comfortable about such a fact without at least one document stating these provisions. This matters because administering a plan assuming an absence of ERISA requirements runs some liability risks (not only for fiduciaries, but also for service providers) if one guesses wrong about whether ERISA governs the plan.

Having a written plan in place does not automatically make a church plan subject to ERISA. My understanding is that a church plan can have a written document yet still elect to not be covered by ERISA. Incidentally, why would a true church plan with the reliances mentioned in Peter's post elect to be covered by ERISA?

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  • 4 weeks later...
Guest Geezer
Church plans are not my area of expertise, so I have a few questions. I have a start up, which only wants to include the 2 full time pastors and not include the 3 other employees who work 20 hours or less per week. Can this be done? I wouldn't think so if we set up a 401(k), but what about a 403(b)? If we can do this under a 403(b), would we be required to have a plan document? Any suggestions?

As I understand the latest Regs., a 403(b) Church plan may use annuities, or custodial accounts with mutual funds under a written plan. Since a Church is not subject to ERISA (unless it elects to be so), the plan may be constructed to accomplish any eligibility criteria. Generally the investment options under such plans are limited to a particular investment firm's offering.

A 403(b)-9 plan sponsored by a convention, or an association of churches, may be a better option because the investment options can be vastly expanded, and the sponsor can authorize a housing allowance for ministers at retirement from the distributions of the account, resulting in a tax free distribution up the amount that be substantiated by the minister. Such plans may offer other investments.

You may e-mail me if you wish about the pending organization of an association of churches to provide such expanded investment options and the housing allowance.

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