non-erisa 403(b) church plan - adopting employers

Hi there,

Are non-erisa church plans allowed to have adopting employers?  If so, are there any rules around why they may or may not be able to?  

I have a client who is a non-erisa church plan who acquired a new entity.  They have 100% ownership of said entity, however, the new entity will be maintaining its own EIN.  Can those employees participate in my clients existing non-erisa church 403b?

Thanks, 

A church plan might have participating employers somewhat beyond the church, mosque, synagogue, temple, or other body but sufficiently tied to the church’s mission and control.

Suggest your client lawyer-up to design all relationships with the other charitable organization so the plan stays within both ERISA’s and the Internal Revenue Code’s church plan definitions.

It can’t be so that the church has 100% “ownership” of the other charitable organization because a § 501(c)(3) charity has no owner. Rather, all the details, including about governance, matter. And look for whether the charity’s functions are something that’s a logical extension of the church’s mission.

This is not advice to anyone.

Some thought should be given to securities law compliance, often overlooked in multiple employer 401(k) plans.  There is a Benefitslink topic on the subject. I don’t know if there are federal exemptions for church related organizations, and don’t forget state securities law.

As QDROphile mentions, some securities law exemptions regarding a single-employer retirement plan do not apply regarding a multiple-employer plan.

Securities Act of 1933 § 3(a)(2), 15 U.S.C. § 77c(a)(2); Employee Benefit Plans; Interpretations of Statute, SEC Securities Act Release No. 33-6188 (Feb. 1. 1980), 45 Fed. Reg. 8960-8979 (Feb. 11, 1980), available at https://www.sec.gov/files/rules/interp/33-6188.pdf. See also SEC No-Action Letters: Honeywell International Inc. Savings Plan Trust (Oct. 7, 2002); Samaritan Health System (Dec. 14, 1993); Sunkist Master Trust (June 5, 1992); Eli Lilly and Co. (Dec. 31, 1991); Nat’l Ass’n of Home Builders of the United States (Nov. 10, 1980 & April 1, 1981); Harvard University Pension Plans and Trusts (July 7, 1980 & July 23, 1980).

If a church plan delivered disclosures regarding the plan’s securities law exemptions, participants and other investors in a church plan’s § 403(b)(9) retirement income accounts do not enjoy the protections (or bear the expenses) of Federal securities laws registrations.

Securities Act of 1933 § 3(a)(13), 15 U.S.C. § 77c(a)(13);

Securities Exchange Act of 1934 § 3(a)(12)(A)(vi), 3(g), 15 U.S.C. § 78c(a)(12)(A)(vi), 78c(g);

Investment Company Act of 1940 §§ 3(c)(14), 30(i)–(j), 15 U.S.C. §§ 80a-3(c)(14), 80a-29(i)–(j).

Peter Gulia is, of course, correct that this is an issue of control (usually analyzed as Board Control) not "ownership."

Almost all Churches, when adopting a 403(b) plan are adopting a Non-ERISA plan.  A Church would need to elect an ERISA status for this to be otherwise (ERISA).

I am also assuming for this discussion that the newly controlled entity is not itself a church.  I suggest reviewing the "Type of entity" section in your pre-approved 403(b) Adoption Agreement under "Churches and Church-Related Organizations."

Hopefully, the "acquired" organization is a church-controlled, tax-exempt 501(c)(3) organization. For your information, I suggest review of "QCCO vs Non-QCCO" published by Servant Solutions, a bundled church plan provider. (A clear, brief discussion of church controlled 501(c)(3) organizations).  The primary determination of the difference between the two is revenue source.

Both a QCCO and a Non-QCCO can participate in a Church 403(b) plan (Non-ERISA), but because Non-QCCO's must also comply with the universal availability requirement (applicable to 403(b) plans but not to Church 403(b) plans) and the DOL rules in 401(a)(4) and 401(m) and 410(b) (also inapplicable to Church 403(b) plans), you may have administrative challenges if you put a Non-QCCO in the Church's plan. 

Hopefully the plan adopted by the Non-Electing Church in question is a 403(b).  (If it is a 401(k), the problem is much more difficult and rare.)  I make no comment about the securities law discussion above.  I also agree that a TPA could be at risk by determining the QCCO or Non-QCCO status.  Our firm would usually ask for an attorney's letter or, at a minimum, a waiver of responsibility for this determination, if made by a third party.