Many Questions regarding church plans

[abanky]

Currently we have a non qualified church plan that only covers priest... NRA 75 and NRB 1000.

1) can a church plan be qualified but not covered by ERISA? (doesn't seem like it can)

All my other questions stem from the answer of this question.

Thank you,

Andrew

[John Feldt ERPA CPC QPA]

Church plans are generally not subject to ERISA. They do not have to follow the ERISA participation rules, the vesting requirements, minimum funding requirements, fiduciary obligations. They also do not have the reporting and disclosure requirements of ERISA. See ERISA §4(b)(1).

A church plan sponsor can voluntarily decide to make the plan become subject to ERISA by making an affirmative election (and, if it's a DB plan, by notifying the PBGC).

There are certain code sections that apply to church plans and government plans, and some of these are under the pre-ERISA rules.

[abanky]

if a plan isn't subject to ERISA, then it's "non-qualified" correct?

also, if it is not subject to ERISA would its trust be protected?

[Guest Danny Miller]

Church plans can be of any type: nonqualified, qualified, or 403(b). Church plans of any type are not subject to ERISA unless, as indicated earlier, the employer elects otherwise. So, the fact that a plan isn't subject to ERISA doesn't make it nonqualified. You can have qualified section 401(a) (and (k)) church plans and section 403(b) church plans.

If a church plan isn't subject to ERISA, its related trust would not be subject to the ERISA fiduciary rules. Said another way, participants in the plan wouldn't have ERISA fiduciary protections. However, state fiduciary protections would be available, both via state trust law and the Uniform Prudent Investor Act, adopted in most states.

Hope this helps.

[abanky]

I'm a learning

now what is the difference between a Non Erisa Non qualified plan and a Non Erisa Qualified Plan?

[Locust]

It seems like you are getting some good help, but let me restate it somewhat.

Qualification is a Internal Revenue Code concept, and not an ERISA concept. If a plan is qualified, certain tax benefits are given, such as the tax exemption of the trust and deferral of taxation of the employees.

Generally, church plans are not subject to ERISA unless they elect to be covered under Code ss 410(d).

If a church elects ERISA status for the plan, it is subject to ERISA, and it must meet the same qualification requirements of the Code as a non-church plan if it wants the benefits of a qualified plan. However, if the church does not elect ERISA status for the plan, it has to meet only some of the qualification requirements. It is a long trek to figure all of this out, but a place to start is the flush language at the end of Code ss 401(a) [the qualification requirements].

Church plans are tricky; lots of different rules you need to know.

[Guest bill parks]

It seems like you are getting some good help, but let me restate it somewhat.

Qualification is a Internal Revenue Code concept, and not an ERISA concept. If a plan is qualified, certain tax benefits are given, such as the tax exemption of the trust and deferral of taxation of the employees.

Generally, church plans are not subject to ERISA unless they elect to be covered under Code ss 410(d).

If a church elects ERISA status for the plan, it is subject to ERISA, and it must meet the same qualification requirements of the Code as a non-church plan if it wants the benefits of a qualified plan. However, if the church does not elect ERISA status for the plan, it has to meet only some of the qualification requirements. It is a long trek to figure all of this out, but a place to start is the flush language at the end of Code ss 401(a) [the qualification requirements].

Church plans are tricky; lots of different rules you need to know.

[Guest bill parks]

Currently we have a non qualified church plan that only covers priest... NRA 75 and NRB 1000.

1) can a church plan be qualified but not covered by ERISA? (doesn't seem like it can)

All my other questions stem from the answer of this question.

Thank you,

Andrew

Yes and No!

A “church plan” is defined in section 414(e) of the Code and section 3(33) of the Employee Retirement Income Security Act of 1974, as amended. The adopting Employer must be a “church” within the meaning of Code section 3121(w)(3)(A) and may not be a “qualified church-controlled organization” within the meaning of Code section 3121(w)(3)(B)

Electing church plans are exempt from the vesting, coverage, and funding requirements of the Employee Retirement and Income Security Act of 1974 (ERISA) but were subject to nondiscrimination rules that were in effect before the enactment of ERISA until January 1, 1997

For post-1996 years, church plans that are subject to pre-ERISA nondiscrimination rules are required to apply the same definition of highly compensated employees that applies to other plans, instead of applying the pre-ERISA rule that prohibits nondiscrimination in favor of officers, shareholders, persons with mainly supervisory roles, and highly compensated employees

Beginning January 1, 2001 church plans must begin to comply with ERISA nondiscrimination rules due to the Tax Reform Act of 1986 (TRA ’86). Church plans will still be exempt from:

1. Fiduciary responsibility;

2. Plan termination notification;

3. Assignments of plan interests under qualified domestic relations orders and

4. Reporting and disclosure forms and notices.

The Nondiscrimination requirements do not apply to non electing church plans until plan years beginning on or after January 1, 2001 or such later date set by the Treasury Department. For plan years beginning before the extended effective date, a non electing church plan must be operated in accordance with a reasonable, good faith interpretation of the rules.

The Bottom Line is that you will need a written plan document and meet the limited non-discrimination requirements by 12/31/07 (this date has been extended several times and may be extended again). Since 2001 your plan MUST have made a GOOD FAITH effort to comply with TRA '86 even if it has not yet adopted a written plan. You need to contact either an ERISA attorney or a TPA firm which handles church plans for proper documentation.

[Guest cstan08]

Currently we have a non qualified church plan that only covers priest... NRA 75 and NRB 1000.

1) can a church plan be qualified but not covered by ERISA? (doesn't seem like it can)

All my other questions stem from the answer of this question.

Thank you,

Andrew

Yes and No!

A “church plan” is defined in section 414(e) of the Code and section 3(33) of the Employee Retirement Income Security Act of 1974, as amended. The adopting Employer must be a “church” within the meaning of Code section 3121(w)(3)(A) and may not be a “qualified church-controlled organization” within the meaning of Code section 3121(w)(3)(B)

Electing church plans are exempt from the vesting, coverage, and funding requirements of the Employee Retirement and Income Security Act of 1974 (ERISA) but were subject to nondiscrimination rules that were in effect before the enactment of ERISA until January 1, 1997

For post-1996 years, church plans that are subject to pre-ERISA nondiscrimination rules are required to apply the same definition of highly compensated employees that applies to other plans, instead of applying the pre-ERISA rule that prohibits nondiscrimination in favor of officers, shareholders, persons with mainly supervisory roles, and highly compensated employees

Beginning January 1, 2001 church plans must begin to comply with ERISA nondiscrimination rules due to the Tax Reform Act of 1986 (TRA ’86). Church plans will still be exempt from:

1. Fiduciary responsibility;

2. Plan termination notification;

3. Assignments of plan interests under qualified domestic relations orders and

4. Reporting and disclosure forms and notices.

The Nondiscrimination requirements do not apply to non electing church plans until plan years beginning on or after January 1, 2001 or such later date set by the Treasury Department. For plan years beginning before the extended effective date, a non electing church plan must be operated in accordance with a reasonable, good faith interpretation of the rules.

The Bottom Line is that you will need a written plan document and meet the limited non-discrimination requirements by 12/31/07 (this date has been extended several times and may be extended again). Since 2001 your plan MUST have made a GOOD FAITH effort to comply with TRA '86 even if it has not yet adopted a written plan. You need to contact either an ERISA attorney or a TPA firm which handles church plans for proper documentation.

Some great information here. But, to clarify a few points, here are a couple more questions:

1) So would I be correct in assuming that if a non-ERISA, church plan 403(b) was elected, that the employer could be completely discriminatory in the amount of contributions given to different employees, as well as choose whatever vesting schedule they wanted?

2) Does everyone have to be able to participate in the plan or can they be discriminatory with that as well?

3) Is it necessary to have a TPA in this case since there is no testing or reporting?

4) I noticed that new legislation became final on July 23, 2007 regarding 403(b)'s. For church plans, the only change I noted was that a written plan was now required. Are you aware of any other changes?

[Guest Patrick Foley]

Nonqualified, non-403(b) church pension plans are subject to the restrictions of Code section 409A, unless I'm mistaken (and I would be happy to be mistaken about this).

[Guest EAforHire]

I have a question. . .

I have a small church that has been given $$$$$$ in 2007. They want to set up a DB plan that and fund the next ten years, today.

After 10 years they will reevaluate the plan and may terminate. So the only funding will be in the first year.

This sounds too good to be true, can anyone tell me why it won't work.

[benefitz]

How exactly does a church maintaining a non-ERISA 403(b) plan elect to be subject to ERISA? The procedure under IRC 410(d) only applies to qualified plans?

[John Feldt ERPA CPC QPA]

Good question. Maybe Carol Calhoun will comment here on this. Without researching this, perhaps following the same procedure that applies to a qualified plan would satisfy the IRS/DOL.

[benefitz]

The election procedure for qualified plans requires attaching a statement to a determination letter application or a Form 5500. Neither would be filed by a nonelecting 403(b) church plan, but would it make sense to file an initial Form 5500 to attach the election?

[Peter Gulia]

If a church plan elects to be governed by the Employee Retirement Income Security Act of 1974, wouldn't ERISA's command for annual reports apply?  If so, wouldn't there be a Form 5500 report on which the plan's administrator could attach the election statement?