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403(b) Church plan and nondiscrimination testing

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I've been studying sections 414(e) and 3121(w)(3) to determine if a seminary that sponsors a money purchase plan and a 403(b) plan is exempt from non-discrimination testing.

I've determined that the seminary's money purchase plan qualifies as a church plan and is exempt from nondiscrimination testing because section 414(e) applies.

However, it seems that the 403(b) plan uses the section 3121(w)(3) definition and that plan would be subject to nondiscrimination testing.

First, I'm wondering if my thought process is on target; and

Second, I'm wondering if anyone else has experience with a plan or plans maintained by a seminary.

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  • 2 months later...
Guest Fred Bee

I don't know how a single employer can be considered a 3121(w)(3) employer with respect to one of its plans, and a 414(e)(3)(A) employer under another plan. I would think the nondiscrimination requirements would or would not apply the same, regardless of the type of retirement plan.

With respect to the 403(b) plan, the final regulations say that the nondiscrimination requirement "does not apply to a section 403(b) contract purchased by a church (as defined in Regs Section 1.403(b)-2)." --Regs Section 1.403(b)-5(d). So that should be clear enough. Because under final Regs. Section 1.403(b)-2(5), a church means "a church as defined in section 3121(w)(3)(A) and a qualified church-controlled organization as defined in section 3121(w)(3)(B)."

By the way, it appears that church-"related" organizations do have to comply with the nondiscrimination requirements, however. They are defined as "a church or convention or association of churches, including an organization described in section 414(e)(3)(A)." --Regs Section 1.403(b)-2(b)(6).


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Why does 414(e) apply to a seminary ? Or exactly where in 414(e) ?

Aren't seminaries church related rather than church controlled ?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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These are good. My question (out of pure curiosity) is that shouldn't it be relatively easy to obtain a determination letter from the IRS pertaining to the type of tax-exempt entity this is? One may already exist. This is usually the easiest way to ascertain whether a non-profit is a 501©(3). Why wouldn't the same process be employed to determine if the seminary in question is a church (or church controlled organization). I think it is, but question whether this is a reasonable process.

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