IRS Guidance Impacts Church Retirement Plans
The IRS has lifted its moratorium on employee benefit plan rulings for churchs, providing updated guidance and procedures that impact all religiously affiliated entities with a standalone 403(b), 401(k), or defined benefit retirement plan. The update also clarifies whether such plans satisfy the criteria of a church plan.
Among the organizations that may be impacted are religiously affiliated elementary and secondary schools, social service organizations, health care organizations, higher education, hospitals, and nursing homes.
A church employee benefit plan is generally not subject to ERISA (Employee Retirement Income Security Act) and other requirements that govern other retirement plans under federal law. This means a church plan is not required to provide certain protections and rights to plan participants, file an annual Form 5500, or be subject to the annual independent audit requirement.
To this end, certain employers may reduce costs by not filing an annual Form 5500 or not having an annual audit on the plan.
The updated guidance provides criteria for determining what constitutes a church, as well as procedures for requesting a letter ruling from the IRS on a church plan’s status. A church plan is not required to have a favorable letter ruling from the IRS. However, other agencies may require a letter in order for a plan to be treated as a church plan.
With this new guidance it is also possible to consider what would be required to change the status of a retirement plan to a church plan.
Contact us to learn more about tax issues for religious institutions.