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Self-Employed Clergy


oldman
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Took over a non-electing church 403(b) plan, which originally was effective 10/01/2003. Plan document specifically states that eligible employee includes clergymen treated as self-employed individuals for purposes of the Federal Insurance Contribution Act. Plan document does not state that the church intended the plan to be a 403(b)(9). Plan was updated for EGTRRA, but not for PPA, HEART, and WRERA. It is my understanding final 403(b) regulations provide that self-employed ministers can only particiapte in a 403(b)(9) retirement income account. Therefore after 01/01/2009, self-employed clergy were not eligible to participate in the plan. An operational defect occurred and appropriate correction remedy would be to distribute excess salary deferral contributions back to the affected individuals with earnings, and matching contributions, attributable to the salary deferral dollars, would be forfeited to a suspense account to be used immediately as a credit towards future contributions.

What do you think?

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Since it is a church you may not have money to get some specific legal advice but if the money can be found you might want to do so. I don't hold myself out as a VCP expert but I have been part of VCP filing processes for clients (never 403b clients). Since you have a bad document and that seems to require a VCP filing anyway for the missing amendments you might want to just add a different fix for the operational error. You might ask whoever is helping you the VCP (if anyone) to see if they think they can propose making the document conform with the operation. In other words change the document reto to allow the clergy to defer while fixing for the missed amendments. I have found that VCPs tend to be rather flexible and generous with "out of the box" fixes for things that were basically legal but just not all the paperwork was not done right. That might spare your clergy the loss of his tax deferred retirement account and match. But before you do that I would talk to someone who has more experience with VCPs then me. I would also not suggest this if you weren't planning on doing a VCP anyway- or put another way I would do a VCP just to fix the operational error. The cost of adding the fix of the operational error along with the document error shouldn't be that much additional cost. A VCP for the operational error by itself might not be worth it when I think you are correct you could just refund the money to the clergy with earnings.

Just spit balling an idea here.

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Where do you see that self-employed ministers can only participate in 403(b)(9) plans?

My understanding is that they may participate in any plan. My opinion is that Reg.1.409(b)-9 is specifically for churches, church associations, and church conventions, but that does not exclude them from other types of exempt plans. The main function of 1.403(b)-9 is that it allows a broader range of permissible investments for the participants.

I don't see that you have a problem. The church has a plan. The minister can participate.

Please correct me with citations if I'm wrong.

I formed an association of churches, and created a church benefits board, to provide retirement plans for churches. I would be very interested in knowing if I'm doing something wrong.

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