Setting up a SEP for church employees

[MBCarey]

Can someone help me understand whether or not a church could set up a SEP for its priests. The church has been putting money aside to pay for contributions on behalf of two priests who can no longer receive contributions to the Church Pension Fund because they are no longer a part of the Church.

For two priests, there is approximately 10,000 for one in a savings acct and 5,000 for another. Can this money be put into a SEP for these individuals? There is one other employee who has been at the church part time for the past 3-5 years, would he have to be put into the plan as well? There are no deferrals just church contributions. I am not sure what else they could do. It is too much money to put into an IRA and the money would have to be given to them first and then put into the IRA, correct? So it would have to be taxed as income?

Any advice is appreciated.

[Guest Eric.]

I'm a little confused. You wrote that the church wants to set up a SEP for its Priests, but then also wrote that the Priests are no longer part of the Church. I'm sure your response will make me utter an "oh, yes, duh", but I'm just not getting it through my head at the moment. Can you clarify that?

[MBCarey]

Sorry,

Our church has broken away from the original denomination and is now apart of a new denomination. These priests can no longer have money sent in for their retirement to the original pension fund. Our church, however, has been putting aside the contributions for these two for the past couple years and is now trying to decide what can be set up for the two of them by our church to take care of their retirement contributions.

[Fisher]

A SEP could be a problem excluding all the other employees of the church. You could set up a 403(b) plan just for the 2 priests. This sounds as though they would be a church under 3121(w)(3)(A) and therefore would not be subject to ERISA, universal availiblity rules or discrimination rules. You could even allow all employees the opportunity to make elective deferrals and provide only the 2 priests an employer contribution.

[MBCarey]

Would it be possible to take the money that they church is currently holding and put it into the 403(b) plan. There is 10,000 for one priest and 5,000 for another that the church has been putting into a savings account. We are not sure how to handle these amounts. Any idea? Would it be too late to set something up for this year?