Distinguishing church plans under ERISA and the Code.

• Author: Cvach, Gary Q.

"Church-controlled organizations" that maintain tax-sheltered annuity plans (Sec. 403(b) plans) and nonqualified deferred compensation plans (Sec. 457(a) plans) should look closely at the definition of "church" used for these plans. Many organizations that are exempt from Title I of the Employee Retirement Income Security Act of 1974 (ERISA), and whose defined benefit and defined contribution plans are exempt from Sec. 401 (a) discrimination rules, may not be exempt from the Sec. 403(b) (12) nondiscrimination rules or the Sec. 457(a) rules.

Church Plans Under Title I of ERISA

Title I of ERISA imposes certain restrictions on employer-sponsored retirement plans, including reporting, disclosure and fiduciary requirements. For example, an ERISA plan must file Form 5500, Annual Return/Report of Employee Benefit Plan (With 100 or more participants), must give participants a summary plan description and must have a written plan document.

Title I applies to all retirement plans, funds or programs (including Sec. 403(b) plans and Sec. 457(a) plans), except those specifically exempted. ERISA Section 4(b)(2) exempts "church plans" from Title I. ERISA Section 3(33)(A) defines a church plan as a plan established or maintained by a church or by a convention or association of churches exempt from tax under Sec. 501.

Under ERISA Section 3 (33) (C), the definition of church plan is construed broadly to include a plan maintained by an organization controlled by or associated with a church or a convention or association of churches. ERISA provides that an organization is associated with a church or a convention or association of churches if it shares common religious bonds and convictions with that church or convention or association of churches. For example, a church-run college or hospital may fit within this definition, if supported by facts, and thus may be exempt from the reporting and fiduciary requirements of Title I.

Church Plans Under the Code

The Code has at least two different definitions relating to the term "church": A fairly broad definition of "church plan" in Sec. 414(e), and a narrower definition of "church" in Sec. 3121 (w) (3). Sec. 414(e), much like the ERISA definition, defines a church plan as a plan maintained by a church or convention or association of churches exempt from tax under Sec. 501, which covers ordained ministers and employees of organizations exempt from tax under Sec. 501 and controlled by or associated with a church; an...