PORTFOLIO

Church and Governmental Plans (Portfolio 372)

Tax Management Portfolio, Church and Governmental Plans, No. 372-4th, discusses issues concerning pension and welfare plans of churches and state and local governments under §414(d) and (e) of the Internal Revenue Code and the parallel provisions of ERISA.

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DESCRIPTION

Tax Management Portfolio, Church and Governmental Plans, No. 372-4th, discusses issues concerning pension and welfare plans of churches and state and local governments under §414(d) and (e) of the Internal Revenue Code and the parallel provisions of ERISA. Chapter I of this Portfolio provides an historical perspective of the regulation of these plans, and includes a description of some of the current issues in state law for governmental plans. Chapter II presents a detailed discussion of the definitions of “church plan” and “governmental plan” for purposes of the Code and ERISA. Chapter III sets out a detailed analysis of tax qualification rules that may apply to governmental and church plans under §401(a), §403(b) (including church retirement income account rules under §403(b)(9)), §457(b), and special rules for other types of deferred compensation. Chapter IV describes special rules for governmental and church welfare benefit plans. Chapter V addresses the relationship between these plans and Social Security benefits. Chapter VI deals with the reporting and disclosure requirements applicable to these plans. Chapter VII discusses sex and age discrimination issues. The Worksheets of this Portfolio include former IRS Publication 778, which describes the rules applicable to §401(a) plans as in effect immediately prior to the enactment of ERISA, some of the legislative history to ERISA and the MEPPA, and charts summarizing the Code provisions applicable to §401(a) governmental and nonelecting church plans.


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AUTHORS

DAVID W. POWELL
David W. Powell, B.B.A., cum laude, Southern Methodist University (1979); J.D., University of Texas School of Law (1982); member: Tax section of the American Bar Association, District of Columbia Bar, New York State Bar, State Bar of Texas, Louisiana State Bar; Certified Public Accountant, Louisiana (1983).

TABLE OF CONTENTS

Detailed Analysis

I. Introduction

Introductory Material

A. Regulation of Governmental Plans

1. Background

2. State Regulation

B. Regulation of Church Plans

II. Definitions

A. Governmental Plan

1. Established and/or Maintained

a. Meaning of “Established and/or Maintained”

b. Plan Established by Private Employer but Maintained by Government Entity

c. Plan Established Through Collective Bargaining

d. Plan Maintained by Private Employer but Mandated by Government Entity

2. Plan Considered Established and/or Maintained for Its Employees

3. Meanings of Political Subdivision and Agency or Instrumentality

a. Political Subdivision

b. Agency or Instrumentality

(1) IRS Rulings

(2) DOL Advisory Opinions

c. Credit Unions

4. Indian Tribe Plans

B. Church Plan

1. Bases for Establishing Church Plan Status

a. Plan Established and Maintained by a Church or by a Convention or Association of Churches

(1) Church Defined

(2) Religious Orders as Churches

(3) Convention or Association of Churches

b. Plan Maintained for “Employees” by an Organization Controlled by or Associated with a Church or a Convention or Association of Churches

(1) An Organization Controlled by or Associated with a Church

(2) Employee of a Church or Convention or Association of Churches

(3) “Controlled by” or “Associated with” a Church

2. Exclusions from Church Plan Definition

a. Plan Established or Maintained Primarily for Benefit of Employees Employed in Connection with Unrelated Trade or Business

(1) Employment in Connection with an Unrelated Trade or Business

(2) Establishment Test

(a) Plan Not in Existence on September 2, 1974

(b) Plan in Existence on September 2, 1974

(3) Maintenance Test

(4) Facts and Circumstances Test

b. Plan in Which Less Than Substantially All Participants Are Employees

3. Church Plans, Chaplains and Self-Employed Ministers

4. Church Plan Definition Remedial Period

III. Tax Qualification

A. Pension Plans - Statutory Framework

B. Governmental Plans and Nondiscrimination Rules

C. Church Plans and Nondiscrimination Rules

D. Advantages and Disadvantages of Qualification Under 401(a) and 403(b)

E. Election of ERISA Coverage by Church Plans

F. Section 401(a) Qualification Requirements

1. Formal Requirements

a. Definitely Determinable Benefits

b. Top-Heavy Rules

2. Incidental Benefits

3. Participation Requirements

a. Governmental Plans

b. Church Plans

(1) Participation and Coverage Requirements

(2) Minimum Participation Requirements

(3) Sanctions for Failure to Satisfy Coverage Tests

c. Qualified Church Plans - Nondiscrimination in Contributions and Benefits

d. Permissible Classifications of Employees

e. Participation of Employees Hired Within Five Years of Normal Retirement Age

4. Vesting

a. Qualified Plans - Vesting at Normal Retirement Age and at Plan Termination

b. Qualified Plans - Vesting to Prohibit Discrimination

c. Forfeitures

d. Discontinuance of Benefits

5. Limitations on Benefits and Contributions

a. Defined Benefit Plan Limitations

(1) General 415(b) Limitation

(2) Special Governmental and Church Plan Rules

(a) Percentage Limit Not Applicable to Governmental Plans and Certain Church Employees

(b) Defined Benefit Plan Dollar Limit Adjustments

(c) Purchase of Past Service Credit

(d) Section 415(b)(10) Election

(3) Treatment of Employee (After-Tax) Contributions

(4) Section 415(m) Excess Plans

b. Defined Contribution Plan Limitations

c. Aggregation of Benefits from Unrelated Employers

d. Limit on Compensation Under 401(a)(17)

6. Funding Requirements

7. Governmental Pick-Up Contributions

a. Pick-Up Requirements

b. Treatment of Pick-Ups Under 415

c. Effect of Pick-Ups on Other Plans

d. Pick-Ups and 403(b) Annuity Plans

e. Pick-Ups and 457 Plans

f. Pick-Ups and 401(k) Plans

g. Pick-Ups and Participant Bankruptcy

h. Pick-Ups and Accumulated Leave

8. Plan Distributions

a. Special Church Plan Rules

b. Special Governmental Plan Distribution Rules

(1) Qualified Public Safety Officers Exclusion for Direct Payments from Governmental Plans for Retiree Health or Long-Term Care Insurance

(2) Tax Relief for Early Distributions to Public Safety Employees

c. Required Beginning Date

d. Qualified Domestic Relations Orders

e. Return of Employee Contributions

9. Fiduciary Standards

a. Exclusive Benefit Rule

(1) Reversions to Employer

(2) Plan Investments

(a) Purchase of Employer Obligations

(b) Acceptance of Employer Obligations as Plan Contributions

(3) Assignment of Benefits in Bankruptcy

b. Fiduciary Responsibility

c. Prohibited Transaction Rule

d. Prohibited Tax Shelter Transactions

10. 401(k) Requirements

G. Remedial Amendment Periods

1. General Remedial Amendment Period

a. Governmental 401(a) Plans

b. Church 401(a) Plans

c. Special Rules for 401(a) and 403(b) Church Plans

d. Special Governmental 457(b) Correction Period

2. Cyclical Remedial Amendment Period

a. In General

b. EGTRRA Remedial Amendment Period

c. Extension of General Remedial Amendment Period

d. Interim Amendments

H. Governmental and Church 403(b) Plans

1. Governmental 403(b) Plans

2. Church 403(b) Plans

3. Church 403(b) Plan Alternative Contribution Limit

I. Governmental and Church 457(b) Plans

J. Governmental Excess Benefit Arrangements

K. Religious Order Charitable Trusts

L. Governmental DROP Plans

M. Church Plans and the Housing Allowance

N. Church and Governmental Plan Audits by the IRS

O. Church Plans and Securities Laws

IV. Church and Governmental Health Care Plans

A. Special Rules

1. COBRA Exemption

2. HIPAA

3. State Insurance Laws

B. Church and Governmental Welfare and Fringe Benefit Plans - Special Rules

1. Church Group Term Life Insurance

2. Church and Governmental Cafeteria Plans

3. Governmental Severance Pay Plans

4. Special Church Plan Exception for Health Plan Nondiscrimination

V. Governmental Plans, Church Plans and Social Security

A. Social Security Coverage

1. State and Local Governments

a. Retirement System

b. Qualified Participant

2. Church and Church-Controlled Organizations

3. Ministers and Religious Orders

B. Church Plans - Integration with Social Security

C. Governmental Plan Offset

VI. Reporting and Disclosure Requirements

Introductory Material

A. IRS and Social Security Administration

1. 401(a) Plans: Request for Determination Letter - Forms 5300, 5303, 5307, 6406

2. Section 401(a) Plans: Termination, Merger, Consolidation or Transfer of Plan Assets or Liabilities - Form 5310

a. Plan Termination

b. Plan Merger

3. Request for Change in Plan/Trust Year - Form 5308

4. Notice of Distribution and Withholding - Forms 1099-R, W-2, 945

5. Active Participant Status

6. Unrelated Business Income Tax - Form 990-T

7. Excise Tax on Reversions - Form 5330

B. Department of Labor

C. Pension Benefit Guaranty Corporation

D. Disclosures to Participants and Beneficiaries

VII. Sex and Age Discrimination Issues

A. Sex Discrimination

1. Governmental Plans

2. Church Plans

B. Age Discrimination

1. Application of ADEA to Governmental Plans and Church Plans

2. Cash Balance Plans

3. Mandatory Retirement or Refusal to Hire

4. Denial of Disability Benefits

5. Benefit Accruals Beyond Normal Retirement Age

6. Standing


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Key Code Provisions Applicable to Governmental and Nonelecting Church Plans

Worksheet 2 Key Code Requirements from Which Governmental and Nonelecting Church Plans Are Exempt

Worksheet 3 IRS Publication 778 Regarding Pre-ERISA Code 401(a)

Worksheet 4 Pre-ERISA Code 401(a)

Bibliography

OFFICIAL

Statutes:

Federal:

State:

Other U.S. Code:

Regulations:

Legislative History:

Treasury Rulings:

ERISA Opinion Letters:

PBGC Opinion Letters:

Cases:

IRS Notices:

Miscellaneous:

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