exemption from auto enroll in a 401k plan

We have a non-profit church that wants to start a 401k plan.  They will have more than 10 employees.  Are they required to have auto enrollment starting in 2025?  There is an exception for "church" plans.  This is a plan with a church as the plan sponsor.  I do not think that these carry the same meaning and that this 401k plan will need to offer auto enrollment.  

Any comments are appreciated.

“[Internal Revenue Code § 414A](a) shall not apply to . . . any church plan (within the meaning of [I.R.C. §] 414(e)). I.R.C. (26 U.S.C.) § 414A(c)(3) https://uscode.house.gov/view.xhtml?req=(title:26%20section:414A%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true.

And here’s the referred-to definition: I.R.C. (26 U.S.C.) § 414(e) https://uscode.house.gov/view.xhtml?req=(title:26%20section:414%20edition:prelim)%20OR%20(granuleid:USC-prelim-title26-section414)&f=treesort&edition=prelim&num=0&jumpTo=true.

Is the plan sponsor the church itself?

Or if something else, does the church sufficiently control the something else?

Also, consider whether § 401(k) or § 403(b) better serves the church’s and its employees’ and ministers’ needs. Which of those is the better fit turns on carefully considering all the surrounding facts and circumstances.

Church sponsoring a plan should use 403(b).  A church sponsoring a 401(k) must apply non-discrimination rules ADP, ACP and top-heavy testing) and pre-ERISA coverage rules; church sponsored 403(b) plans are not so required.  See the article by Barry Salkin, the Wagner Law Group in Lexis Practice Advisor for the "Special Rules that Apply to 403(b) Church Plans" on pages 11, 12 and 13.

The Exemption from Auto Enrollment in SECURE 2.0 simply says "church plans."  While this exemption may also include 401(k) plans sponsored by a church (must be 501(c)(3)), the rules currently available are unclear on whether this includes 401(k) plans.

To the extent that a nondiscrimination rule might be among factors to consider in evaluating whether § 401(k) or § 403(b) better serves a church’s and its employees’ interests, a church has no owner, might have no employee with compensation reaching $155,000 [2024], and so might have no highly-compensated employee.

While I often prefer § 403(b) over § 401(a)-(k), the distinction can affect the availability of some investment alternatives, and even some service providers.

For example, some collective investment trusts do not admit any § 403(b), even if both tax law and securities law could allow a church’s § 403(b)(9) retirement income account. And some unregistered group variable annuity contracts are offered only to a § 401(a)-(k) plan, and are unavailable for a § 403(b).

Likewise, some recordkeepers won’t offer a service to a plan that doesn’t fit neatly into one of the provider’s established service models.

On some of my charity engagements with churches, what was better from a tax law or plan-design perspective was the opposite of what was better from an investment or service perspective.

For these and other reasons, one carefully considers all the surrounding facts and circumstances.

Thanks everyone.  The plan sponsor is a local church, not controlled by a different entity

And consider preferring a service provider that has a capability to treat a portion of payments to a retired minister as I.R.C. § 107 parsonage allowance, with Form 1099-R showing the taxable portion of a non-Roth distribution as less than the gross distribution, subtracting the amount the church specifies as the § 107 allowance.