$5,000 cash out in Church Plans

[Guest andmik]

Am I correct in my understanding that a nonelecting church plan is not subject to the $5,000 small cash out restriction and therefore is actually able to cash participants out regardless of the size of account balance(greater than $5K)?

Thanks for your feedback on this one.

Andmik

[jpod]

A church plan is not subject to the cash-out limitations. Therefore, the plan does not have to be written to comply with those limitations.

But, what DOES the plan say?

[Guest andmik]

JPod,

Thanks for your response. The document the plan is using is silent on the cash out rules so I think that based on your insight they are not constrained by the $5K limit and therefore can cashout higher balances.

I appreciate you taking the time to assist.

andmik

[MGB]

I disagree with your conclusion. If the document is silent on the cashout, how can the plan administrator do it? The participant most likely has the right to an annuity under the plan. Of course, that depends on the plan language. I think it would need affirmative language authorizing the plan administrator to cash them out. Silence does not give them that authority.

[jpod]

I agree with MGB. What does the plan say?

If it does not address the issue, I think it can be amended to accomodate anything you'd like to do, because the plan is not subject to the 411(d)(6) rules (if it is a church plan).

However, again you must look at the document to make sure that the plan does not have its own rule which would serve as an obstacle to amending the plan to add a mandatory or discretionary cash-out provision.

By the way, if the employer is not truly a church, but is some type of church-related organization, do you have IRS and DOL rulings to confirm that it is, in fact, a "church plan," or at least a definitive opinion of counsel on the issue? [be careful.]

[david rigby]

Indeed. And be careful that the document does not contain some indirect reference to the Code or IRS regulations (even if not required to).