Eligible Employers

[30Rock]

I have a question on church and religious organizations and adoption of a 457b plan.

I do not think a steeple church or QCCO under 3121 can sponsor a 457(b) plan. However, it appears that a 414(e) religious organization that is not a steeple church, can sponsor a 403(b) plan however since the employer is not subject to ERISA, the plan would be a deferred comp plan for all plans, and NOT a top hat plan. However, as a governmental plan, the features of the plan are similar to a top hat - ie no loans, no rollovers, no age 50 catchups

Can someone confirm??

Thanks!

[TLGeer]

I have a question on church and religious organizations and adoption of a 457b plan.

I do not think a steeple church or QCCO under 3121 can sponsor a 457(b) plan. However, it appears that a 414(e) religious organization that is not a steeple church, can sponsor a 403(b) plan however since the employer is not subject to ERISA, the plan would be a deferred comp plan for all plans, and NOT a top hat plan. However, as a governmental plan, the features of the plan are similar to a top hat - ie no loans, no rollovers, no age 50 catchups

Can someone confirm??

Thanks!

[TLGeer]

I have a question on church and religious organizations and adoption of a 457b plan.

I do not think a steeple church or QCCO under 3121 can sponsor a 457(b) plan. However, it appears that a 414(e) religious organization that is not a steeple church, can sponsor a 403(b) plan however since the employer is not subject to ERISA, the plan would be a deferred comp plan for all plans, and NOT a top hat plan. However, as a governmental plan, the features of the plan are similar to a top hat - ie no loans, no rollovers, no age 50 catchups

Can someone confirm??

Thanks!

This question is too broad for a useful answer. Do you have a specific situation? Is the employer a 3121(w)(3) entity? How is it church related? Who do they want to cover?

[30Rock]

NO they are not a 3121 church. They are a religious affiliated entity under 414(e) in the healthcare area.

[oldman]

Here is a response from David Powell at Groom.

"First, note that many church organizations are not employers eligible to maintain a 457(b) plan. See Code section 457(e)(13). Only tax exempt organizations which are NOT churches or qualified church controlled organizations under Code section 3121(w)(3)(A) and (B) (usually, church hospitals, colleges, universities and nursing homes) may maintain 457(b) plans. Because such plans are exempt from ERISA as church plans, they need not be top hat. But if funded, they will run afoul of the constructive receipt/economic benefit rules and will be immediately taxable to the participants. Consequently, most use, at most, a rabbi trust where the assets are exposed to creditors of the employer. And they do not get the benefit of the rules applicable only to governmental plans, so no age 50 catch-up, no loans, and distributions are not eligible rollover distributions. They are essentially like other tax exempt organization 457(b) plans, just not limited to the top hat group."

[TLGeer]

Here is a response from David Powell at Groom.

"First, note that many church organizations are not employers eligible to maintain a 457(b) plan. See Code section 457(e)(13). Only tax exempt organizations which are NOT churches or qualified church controlled organizations under Code section 3121(w)(3)(A) and (B) (usually, church hospitals, colleges, universities and nursing homes) may maintain 457(b) plans. Because such plans are exempt from ERISA as church plans, they need not be top hat. But if funded, they will run afoul of the constructive receipt/economic benefit rules and will be immediately taxable to the participants. Consequently, most use, at most, a rabbi trust where the assets are exposed to creditors of the employer. And they do not get the benefit of the rules applicable only to governmental plans, so no age 50 catch-up, no loans, and distributions are not eligible rollover distributions. They are essentially like other tax exempt organization 457(b) plans, just not limited to the top hat group."

Works for me.

The fact that they are in healthcare should make you look closely at the 3010(w)(3) definition to make sure they aren't excluded as an eligible employer. Also, we are assuming, rather than advising, that the plan is a church plan under 414(e) and ERISA 3(33). The fact that an employer is church related does not necessarily mean the plan is a church plan, or that if it is it is a nonelecting church plan.

[30Rock]

Thanks Oldman!

How did you find that David Powell article?

[30Rock]

I found it!

But not sure this really answers the question because note he says "they need not be top hat". Since the religious org is not subject to ERISA, they can offer the plan to all employees, or limit it to the top hat group. Keeping it "unfunded" appears to be the main issue.

b)lines Ask the Experts – Church 457(b) Plans

Dec 22, 2009 (PLANSPONSOR.com) -- December 22, 2009 (PLANSPONSOR (b)lines) – A plan provider notes: "If a nonelecting church, non-ERISA 414(e) organization sponsors an eligible 457(b) plan, it appears that this plan can be offered to all employees, rather than limited to a top hat group, since the plan is not subject to ERISA. However, 457(a) requires all non-governmental 457(b) plans assets to be unfunded."

The provider asks: "Since the employer is exempt from ERISA, does this requirement apply to the 414(e) religious organization? Is the plan considered funded or unfunded? In addition, in general, do the 457(b) rules applicable to governmental plans or top hat plans apply - i.e. rollovers, age 50 catch-up, assets protected from the 414(e) organizations, plan loans?"

David Powell, Groom Law Group, answers:

First, note that many church organizations are not employers eligible to maintain a 457(b) plan. (See Code section 457(e)(13)). Only tax exempt organizations which are NOT churches or qualified church controlled organizations under Code section 3121(w)(3)(A) and (B) (usually, church hospitals, colleges, universities and nursing homes) may maintain 457(b) plans.

Because such plans are exempt from ERISA as church plans, they need not be top hat. But if funded, they will run afoul of the constructive receipt/economic benefit rules and will be immediately taxable to the participants. Consequently, most use, at most, a rabbi trust where the assets are exposed to creditors of the employer. And they do not get the benefit of the rules applicable only to governmental plans, so no age 50 catch-up, no loans, and distributions are not eligible rollover distributions. They are essentially like other tax exempt organization 457(b) plans, just not limited to the top hat group.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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