5500 needed for 403(b)(7) program of church employer?

[Dave Baker]

Is an annual 5500 needed for a 403(B)(7) program of church employer? The employer is putting in 5% of pay for a couple of officers of an organization, one of whom is using a 403(B)(7) custodial account rather than a 403(B)(1) insurance company annuity contract, and I'm sure the arrangement is a "church plan" as defined in ERISA.

I think no 5500 is required, even though some of the money is going into a custodial account -- the 1998 Form 5500 instructions say "Do not file a return/report for an employee benefit plan that is any of the following ... A church plan not electing coverage under Code section 410(d)."

But the Tax Management Portfolio (388-4th) author (Tax Deferred Annuities--Section 403(B)) says church (and governmental) sponsors must make the filings "if funded through tax-deferred custodial accounts," citing a provision in a Treasury reg under Code section 6058(a) (the 5500 statute). The reg specifically includes 403(B)(7) custodial accounts in the definition of "funded plan of deferred compensation," for purposes of the reg's requirement that each funded plan of deferred compensation file an annual information report with the IRS. (Treas. Reg. 301.6058-1.)

But the reg goes on to enable the IRS Commissioner to relieve, in his disretion, an employer from filing information on the forms prescribed by section 6058(a). This seems to be the basis for the Form 5500 instructions' language specifically excluding governmental and church plans from filing, whatever the kind of plan being sponsored (but with a specific exception to the exception in the instructions for "statutory fringe benefit plans" such as cafeteria plans).

[This message has been edited by Dave Baker (edited 09-23-1999).]

[Carol V. Calhoun]

Hmm, don't I know you from somewhere?

In brief, BNA is wrong on this point. Because ERISA Title I does not apply to church plans which have not made an election under I.R.C. § 410(d) to be subject to ERISA, we need to look at the I.R.C. for guidance on this one. There are actually two I.R.C. sections (6057 and 6058) which provide for the Form 5500 requirements.

I.R.C. § 6057(a) provides that the Form 5500 filing requirements apply to "each plan to which the vesting standards of [ERISA section 203] applies," a term which would not include a nonelecting church plan. I.R.C. § 6057© provides only for certain voluntary reports by church and governmental plans.

I.R.C. § 6058 states that an employer shall file "such information as the Secretary may by regulations prescribe," so the IRS is free to exempt plans from its requirements. And as you note, the regulations also provide for the IRS to provide exceptions.

Announcement 82-146 provides such an exception. It states that a nonelecting church pension benefit plan (which would include a 403(B)(9) arrangement) need not file a Form 5500. And as you point out, a similar statement appears in the Form 5500 instructions. Thus, a nonelecting church 403(B)(9) plan would not be required to file a Form 5500.

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[This message has been edited by CVCalhoun (edited 09-23-1999).]