New IRS Procedures for Church Plan Rulings

Built on the foundation of the Tax Management Portfolios™, Bloomberg Tax is a comprehensive tax research solution designed by tax practitioners for tax practitioners.

By David W. Powell, Esq.  

Groom Law Group, Chartered, Washington, DC

On September 26, 2011, the Internal Revenue Service (IRS) issued Rev. Proc. 2011-44, the principal purpose of which is to add a requirement that when a church plan sponsor applies for a private letter ruling on whether the plan is a church plan under Internal Revenue Code (IRC) §414(e), the applicant must notify participants and beneficiaries of the ruling request in a manner similar to requirement of a Notice to Interested Parties when a determination letter is sought. A model notice is attached to the revenue procedure, which informs the participants and beneficiaries of the consequences of being a church plan that has not made the election under IRC §410(d) to be subject to ERISA, of primary concern is the Code and ERISA rules that will not apply.


Until about 2005, the IRS routinely issued private letter rulings on whether a plan was a church plan within the meaning of IRC §414(e). The Department of Labor issued similar advisory opinions under the parallel definition of church plan under ERISA §3(33), though less often than the IRS. Occasionally, the PBGC would issue opinions as well on defined benefit plans. (A discussion of some of the more significant rulings and opinions can be found in Powell, 372 T.M., Church and Governmental Plans.)

Applications for church plan rulings seemed to increase in the 1990s as it became known that a church plan that was a defined benefit plan was not subject to PBGC premiums and was not covered by PBGC insurance. When the PBGC announced that it would impose a six-year statute of limitations on refunds (see PBGC Notice 12/1/93), it brought particular attention to the issue. However, some of those church entities, particularly in the health care area, subsequently went bankrupt, leaving underfunded pension plans not covered by PBGC insurance. In one example, the participants challenged a determination of church plan status of Hospital Center of Orange (a for-profit acquired by Archdiocese of Newark in 1998) by the IRS, trying to obtain PBGC insurance coverage for benefits when the hospital went bankrupt. The case was held not ripe for review because the Service was at the time reviewing its prior ruling. SeeTynes v. PBGC, 96 AFTR2d 5696 (D.N.J. 2005).

Largely in response to these concerns, the IRS, DOL and PBGC have been reviewing the definitions of both church plan and governmental plan. The new revenue procedure is a product of that review.

New Notice Rule 

Under Rev. Proc. 2011-44, the applicant must provide a copy of the notice to each interested person, defined as each plan participant, beneficiary, or alternate payee, and any employee organization representing employees who are plan participants. In the case of a plan covering more than one employer, the notice must also be provided to each contributing employer other than the applicant.

The revenue procedure includes a model notice for this purpose which contains a discussion of what ERISA and Code provisions will not apply to the plan as a church plan, assuming it has not made the election under IRC §410(d) to be subject to ERISA. The model notice also states that "[i]f a church plan is excluded from ERISA coverage, state laws could independently provide protections and rights to participants, beneficiaries, and alternate payees. However, this would depend on the applicable state law." The revenue procedure provides that inapplicable provisions can be deleted, such as the PBGC descriptions in the case of a defined contribution plan.

The applicant must make a reasonable effort to satisfy the notice rules, and if they do so, the failure of one or more interested persons to receive the required notice will not cause the applicant to fail the notice requirement.

Reasonable efforts presumably include mailing by first class U.S. mail. The revenue procedure states that mere posting of the notice on a bulletin board is not sufficient to constitute a reasonable effort to satisfy the notice requirement unless (a) the notice is prominently displayed on a bulletin board at a principal place of employment, (b) the bulletin board is regularly and actively used for a wide variety of purposes by employees who are plan participants, and (c) notice is given to all other interested persons by other methods that constitute a reasonable effort to satisfy the notice requirement. If the notice is provided by posting, it must provide that the interested person may request and receive the applicable notice on paper from the applicant at no charge.

The notice, together with a statement that the notice was provided, must be included with the ruling request. The statement must specify the date or dates the notice was provided, and the date must be within 30 days before the letter ruling request is submitted to the IRS. For ruling requests already pending on September 26, 2011, the applicant must submit within 60 days of September 26, 2011 a copy of the notice to interested persons (modified to specify that the letter ruling request has already been submitted to the IRS) to the IRS along with a statement in a cover letter referencing the pending ruling request and stating the date or dates on which such notice was provided.

Presumably, the main impact of the ruling will be on underfunded defined benefit plans, where participants have an especially direct interest in whether the plan is subject to ERISA, and covered by PBGC insurance, than in a typical church defined contribution plan. In a press release dated September 22, 2011, the Pension Rights Center stated that "[t]housands of participants in plans set up by church-affiliated hospitals and other nonprofits that were initially covered the federal pension law and continue to operate as ERISA plans will now have an opportunity challenge their plans' requests for rulings." Presumably, they are hoping that some church plan rulings for underfunded defined benefit plans of insolvent employers will be withdrawn. It is not clear, though, that the law applied and the result of the rulings will be any different under the revenue procedure than before. Some additional IRS guidance on church plans is expected in the area of how the IRC §410(d) election for church plans may be made, and perhaps in the church plan definition itself, so further changes may be in the offing for church plan sponsors.

 For more information, in the Tax Management Portfolios, see Powell, 372 T.M., Church and Governmental Plans,  and in Tax Practice Series, see ¶3827, National Office Guidance and Procedures. 

Request Bloomberg BNA Tax & Accounting