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Lutheran church trying to set up 403b


Guest statcat
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Guest statcat

Hi. I'm a volunteer at a small Lutheran church.

We want to set up a 403b for our incoming Pastor and set it up where he contributes and we match some of what he contributes. We have preliminarily looked at the Vanguard 403b7 plan because we want to have this pretty straightforward and invested in a few mutual funds. We are going to reimburse him for the cost of enrolling him in the plans.

1. From what I understand, because we are a church, we are not subject to Erisa so we don't technically need a plan document. Would someone please find the right quotation in the IRS law as a reference so I can show the church board of directors?

2. We have a church secretary and an organist. I think at least the secretary works somewhere around 15-20 hours a week. Are we OK excluding them from the 403b? (again, any citation from IRS law appreciated). If we need a plan document, what kind of language do you suggest we use to exclude them?

3. If we don't need a plan document, I assume we need some sort of document laying out the terms of what he can contribute, what we will match, etc. Do any of you have a template to either share or can you point me to one? Alot of the 403b sample plans I've found online by doing a google search simply refer to public schools, not churches.

Thanks, statcat

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1) No document requirement is correct.

2) Churches are exempt from universal availability, meaning you can cherry pick your participants. If you want pastor only, you may with no problem.

3) The 403(b)(7) paperwork will typically have the needed provisions.

The Vanguard Representative should provide you all of this. If not, align with a service provider that will make this process as easy for you as possible. It appears as if you have done good research; I'm impressed :)

Good Luck.

CPC, QPA, QKA, TGPC, ERPA

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Guest Danny Miller

No plan document required--if you adopted a 403(b)(9) retirement income account, you would need a plan document. But you don't need one if you adopt a 403(b)(7). See Treas. Reg. sec. 1.403(b)-2(b)(3)(iii).

Churches are exempt from nondiscrimination testing--both universal availability, with respect to employee deferrals and employer matching and "regular" contributions. So, you can exclude the secretary and organist. See Treas. Reg. sec. 1.403(b)-5(d).

Even if a plan document isn't required--which it isn't--I think it's a good idea to have one, so that there isn't a dispute about how much is to be contributed and for whom. You could take care of those issues in a resolution adopted by your church's board (or equivalent body) and then just rely on the custodial account agreement Vanguard gives the participant to reflect his/her participation in the plan. The IRS included a template plan document for K-12 schools in Rev. Proc. 2009-71. You should also be able to modify that document for use by your church.

Not sure whether your church is Missouri Synod Lutheran, ELCA or WELS, but all three have 403(b)(9) plans in place for clergy and lay workers--but I assume you already know that and have decided to go with Vanguard. The advantage of using the denominational plans is that they do all the administration and handle compliance issues. Those plans are (b)(9)s but they of course have their own plan documents for which they are responsible.

And remember, you're plan is maintained by a church, so no annual 5500 is required--even if Vanguard tells you that you have to file one.

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