5500s and change to church plan status

[Guest MichiganGirl]

I am working with an employer that is associated with a church, and is in the process of establishing an administrative committee to administer its 403(b) and welfare plans to fall within the church plan definition of Section 414(e). (Note that they do have a legal opinion that if they take this step they will most likely be considered church plans.)

The employer previously had ERISA language in its plan documents and filed 5500s. It recently discovered that it failed to file 5500s for the 2007 and 2008 plan years for its 403(b).

In addition it is questioning whether it should file the 5500s for the 2009 plan year, given that it is taking steps to be a church plan in 2010 (the process of which started in 2009).

Does anyone have any insight as to where the IRS will come out in its pending guidance regarding church plans?

For example, if they previously filed 5500s and had ERISA language in their documents, but now have removed the ERISA language and desire to file the 2009 5500 as the "final" 5500, will the IRS consider them to have "deemed" to have elected to be covered by ERISA due to the filing of the 5500s and the ERISA language?

Or will their be some type of grandfather for plans that are church plans on the date the guidance is issued, regardless of when they became church plans?

Thanks in advance for any thoughts or insights!!

[TLGeer]

I am working with an employer that is associated with a church, and is in the process of establishing an administrative committee to administer its 403(b) and welfare plans to fall within the church plan definition of Section 414(e). (Note that they do have a legal opinion that if they take this step they will most likely be considered church plans.)

The employer previously had ERISA language in its plan documents and filed 5500s. It recently discovered that it failed to file 5500s for the 2007 and 2008 plan years for its 403(b).

In addition it is questioning whether it should file the 5500s for the 2009 plan year, given that it is taking steps to be a church plan in 2010 (the process of which started in 2009).

Does anyone have any insight as to where the IRS will come out in its pending guidance regarding church plans?

For example, if they previously filed 5500s and had ERISA language in their documents, but now have removed the ERISA language and desire to file the 2009 5500 as the "final" 5500, will the IRS consider them to have "deemed" to have elected to be covered by ERISA due to the filing of the 5500s and the ERISA language?

Or will their be some type of grandfather for plans that are church plans on the date the guidance is issued, regardless of when they became church plans?

Thanks in advance for any thoughts or insights!!

Has the plan administrator made a formal election under 410(d)? Probably not.

If not, the presence of inappropriate ERISA language in the plan document is irrelevant, and no 5500s at all need be filed.

An otherwise church plan that has made an election cannot be converted to church plan status, as the election is permanent.

The law firm's advice here appears to be inadequate, at best.

Please update this thread for the law firm response.

Thomas L. Geer, J.D., LL.M.

[Guest MichiganGirl]

The employer has not made an election under 410(d).

The employer is concerned that because it did not formally establish the administrative committee until 2010, it did not truly obtain "church plan status" until 2010. Therefore, should 5500s be filed through the year prior to the plan year in which the employer feels it formally became a church plan? (In other words, if the plan became a church plan in 2010, should they file 5500s through the 2009 plan year?)

Thanks again!

[TLGeer]

The employer has not made an election under 410(d).

The employer is concerned that because it did not formally establish the administrative committee until 2010, it did not truly obtain "church plan status" until 2010. Therefore, should 5500s be filed through the year prior to the plan year in which the employer feels it formally became a church plan? (In other words, if the plan became a church plan in 2010, should they file 5500s through the 2009 plan year?)

Thanks again!

I fail to see the problem, and in two senses.

First, whether or not the plan has an administrative committee has nothing to do with whether or not it is a church plan. In fact, church plan status means the plan does not have to have an administrator, in the formal sense, at all, since the plan administrator concept is an ERISA concept. So, absent additional facts, it is tough to see how adding one has much to do with church plan status.

Second, under the church plan definitions in both ERISA and the Code, as long as a plan is maintained by a church or convention or association of churches that is tax-exempt, the plan can be fixed within the statutory correction period without ever being classified as a non-church plan. And the 270-day correction period doesn't even start until the IRS sends a default notice.

As a result, I am hesitant to give an answer because I don't fully understand the situation.

Tom Geer