Roger Siske, dear friend, mentor and traveling companion had taught me much about the art of travel, about enjoying myself well while on the road for what seems at times like far too many hours. One of the places to which we had traveled several times together was San Francisco, home of the two labyrinths of Grace Cathedral.

The Cathedral’s Labyrinths are part of an impressive church meditative tradition.  It is a walking maze,  with many interconnecting paths,  offer blind alleys and cul-de-sacs as part of the design, often deliberately disrupting the sensibilities of the human mind.

It is with pleasure I think of visiting those mazes, not of the one’s created by the 403(b) rules regarding church plans.

It truly is an odd maze, one where differences in the manner in which a church approaches its missions reflects in a different way in which the rules will apply. This short piece will hopefully help wend through the maze.

“Church” is really used in three different ways in governing 403(b) plans, to different effect:

1.  Definition of Church Plan for ERISA purposes. This definition determines whether or not a 403(b) plan (or 401(a) plan, for that matter) will be subject to ERISA or not. it is the definition under 414(e) of the Code :

A plan established and maintained for its employees (or their beneficiaries) by a church or by a convention or association of churches includes a plan maintained by an organization, whether a civil law corporation or otherwise, the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church or a convention or association of churches, if such organization is controlled by or associated with a church or a convention or association of churches.

An organization, whether a civil law corporation or otherwise, 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

This is a broad definition of church, effectively meaning the church itself and any other org which shares its common religious bonds.  This would include the likes of church hospitals and church affiliated universities.

2.  Definition of “Church related organization.”  The 403(b) regs uses the term 414(e) definition of church, and calls it a “church related organizations” (note the emphasized language in the 414(e) definition above) when it addresses most issues which the typical practitioner sees as a “church.”  It is used for identifying what organization can have a retirement income account; defining a minister under 403(b) (you don’t need to be a minister of a “steeple church, below, to be a minister) and church employees; qualified organization for the 15 year long service catch-up; permissive disaggregation; and the extended effective dates or specific 403(b) reg purposes.

The only special treatments attendant to this designation are those listed in the prior sentence.  The other 403(b) rules which apply to other 501(c)(3) orgs apply to “church related organizations” which are not “churches,” as defined below.

3. Definition of “Church.”   “Church,” under the 403(b) regs, is a very limited term. It only refers to “steeple churches,” (as defined under 3121(w)) and determines what kind of church organization gets extraordinary treatment under the 403(b) regulations. The plans offered by these churches are still 414(e) church plans for the rest of the regulation’s purposes, and not ERISA covered (unless they elect otherwise). The special treatment is that they do not need plan documents; nor are they required to perform discrimination testing. “Church,” for these purposes, is defined as follows:

 “Church” means a church, a convention or association of churches, or an elementary or secondary school which is controlled, operated, or principally supported by a church or by a convention or association of churches, and includes a “qualified church-controlled organization.”  This means any church-controlled tax-exempt organization described in section 501(c)(3), other than an organization which—

(i) offers goods, services, or facilities for sale, other than on an incidental basis, to the general public, other than goods, services, or facilities which are sold at a nominal charge which is substantially less than the cost of providing such goods, services, or facilities; and

(ii) normally receives more than 25 percent of its support from either (I) governmental sources, or (II) receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities, in activities which are not unrelated trades or businesses, or both.

Church organizations that which fall out of the definition of “steeple church” are typically still 414(e) churches, and subject to the “church related organization” 403(b) rules, and are still 501(c)(3) orgs.
 It has been well over a month since my last posting, as my “writing time” has been tied up with finalizing Thompson Publishing’s “403(b) and 457 Handbook,” co-authored with Conni Toth of Applied Pension Professionals, LLC; working on annuity stuff; as well as being fully engaged in this spring speaking season. This week, I am speaking at Wilmington Trust’s client seminar,on a Businessperson’s Guide to Paying, Making and Keeping ERISA Compensation- coordinating with Jan Jacobson’s fed update session. The book will be published shortly, and I look forward to re-engaging.
Look soon for more frequent posts.

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