Religious organization's pension plan qualifies as a church plan

Plain-English summary

A tax-exempt religious organization formed by a religious institute within a church maintained a frozen defined benefit plan for its employees. Its board appointed a committee whose principal purpose was administering retirement plans intended to be church plans, and the committee operated under the board's oversight in accordance with the church's teachings and tenets. No eligible participant worked for a for-profit entity or an unrelated trade or business. The IRS concluded that the organization and committee were associated with the church, the employees were deemed church employees, and the plan had qualified as a church plan under section 414(e) since its inception. It also ruled that filing Forms 5500 and paying Pension Benefit Guaranty Corporation premiums did not make an irrevocable section 410(d) election because the administrator had never attached the required affirmative election statement.

Ruling snapshot

• Question: Is the pension plan a church plan, and did regulatory filings or PBGC premium payments elect out of church-plan treatment?
• Outcome: approved
• Key authorities: IRC §§ 410(d), 414(e), 501, 513; Treas. Reg. § 1.410(d)-1

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201739010                                                 Third Party Communication: None
Release Date: 9/29/2017                                           Date of Communication: Not Applicable
Index Number: 414.08-00
                                                                  Person To Contact:
                                                                  --------------------------------------------
------------------------------------------------------------      Telephone Number:
-----------------------------                                     ----------------------
----------------------------                                      Refer Reply To:
-----------------------------------                               CC:TEGE:EB:QP3
                                                                  PLR-139751-16
-------------------------------------                             Date:
                                                                  June 21, 2017




Legend:

Entity A                             =       -----------------------------------------------------------------------
-------------------------------------------------------------

Religious Institute B                   =    ------------------------------------------------------------------------
                                             --------------------------------------

Church C                            =        ----------------------------------------

State D                                 =    --------------

Directory E                         =        -----------------------------------------

Committee F                         =        ------------------------------------------------------------------------

Plan X                              =        -----------------------------------------------------------------------
                                             ---------------------------------------------------------------------

Date 1                              =        ------------------

Date 2                              =        -----------------------------

Date 3                              =        ---------------------------
PLR-139751-16139751-16                         2



Dear ---------------:

This letter is in response to your request, submitted on your behalf by your authorized
representative, regarding the status of Plan X as a church plan within the meaning of
§ 414(e) of the Internal Revenue Code (Code).

The following facts and representations have been submitted under penalty of perjury
on your behalf:

Entity A was formed by Religious Institute B, a religious community within Church C, to
carry out Religious Institute B’s mission in State D and certain other regions in the
United States. Entity A focuses on facilitating the provision of health care, education
and social services to the poor, and undertakes missionary activities. Entity A is also
referred to as a ------------------ of Religious Institute B, and is a religious order within
Church C.

Entity A is an incorporated not-for-profit religious organization under the laws of
State D. The authority to manage Entity A generally rests with its Corporate Board of
Directors (the "Board"). Under Entity A’s articles of incorporation and bylaws, only
individuals who serve in specified leadership positions of the religious congregation of
Entity A are eligible to serve as members of the corporation (within the meaning of State
D’s incorporation laws) and directors of Entity A. Under Entity A’s articles of
incorporation and bylaws, each member and director of Entity A is required to be a
member of Entity A’s religious congregation, and will cease to be a member or director
of the corporation if the individual ceases to be a member of the religious congregation
of Entity A.

Entity A’s articles of incorporation provide that it is a religious corporation organized
exclusively for religious purposes, specifically to support and foster the mission and
purposes of Religious Institute B, and not for the private gain of any person. The
articles further state that the property of Entity A is irrevocably dedicated to religious
purposes, and that no part of the net income or assets of Entity A shall ever inure to
the benefit of any director, officer or member thereof or to the benefit of any private
person. Finally, the articles specify that upon Entity A's dissolution, its assets
remaining after payment or provision for payment of all debts and liabilities of Entity A
shall be distributed to a nonprofit fund, foundation or corporation selected by the
members of the corporation, which is organized and operated exclusively for religious
purposes and which has established its tax exempt status under § 501(c)(3).

Entity A is organized and operated exclusively for religious purposes within the
meaning of § 501(c)(3). Entity A is listed in Directory E of Church C, and is exempt
PLR-139751-16139751-16                       3

from federal income tax under § 501(a) as an organization described in § 501(c)(3)
pursuant to a group exemption letter applicable to organizations listed in Directory E.

Entity A established Plan X, a defined benefit plan qualified under § 401(a), effective
Date 1. Plan X was completely frozen as of Date 2. As a result of the plan freeze, no
new participants will enter the Plan and participants will not accrue any additional
benefits under the Plan after Date 2. Prior to Plan X being frozen, all of Entity A’s
employees were eligible to participate in Plan X after attaining age 21 and completing
2 years of service.

Committee F has been appointed as administrator and named fiduciary of Plan X.
Committee F was created by the Board of Entity A for the purpose of administering a
program of retirement plans which are intended to be church plans under § 414(e),
and has full discretionary power and authority to administer Plan X in all of its details,
subject to the ultimate oversight of the Board. Members of Committee F are
appointed by the Board, and Committee F is required to report to the Board at least
annually.

Committee F’s charter provides that Committee F’s administration shall be in a
manner consistent with the teachings and tenets of Church C and Religious Institute
B. The charter states that Committee F shares common religious bonds and
convictions with Church C and Religious Institute B. Committee F includes two officers
of Entity A, ex officio, and currently at least three of the six members of the committee
hold official positions within Entity A.

None of the eligible participants in Plan X are or can be considered employed in
connection with a for-profit entity or one or more unrelated trade or businesses of
Entity A within the meaning of § 513. All eligible participants of Plan X are employed
directly by Entity A and there are no other participating employers in Plan X.

Although Entity A has filed Form 5500 and paid premiums to the Pension Benefits
Guaranty Corporation (PBGC), the plan administrator of Plan X never made an election
under § 1.410(d)-1 of the Federal Income Tax Regulations (Regulations) with regard to
Plan X.

In accordance with Revenue Procedure 2011-44, 2011-39 I.R.B. 446, a notice to
interested persons regarding Plan X was provided on Date 3. This notice explained the
consequences of church plan status.

Based on the foregoing, you request a ruling that Plan X is a church plan within the
meaning of § 414(e) of the Code. You also request a ruling that the filing of Forms 5500
and payment of PBGC premiums does not constitute an election by Entity A under
§ 410(d).
PLR-139751-16139751-16                        4

Section 414(e)(1) generally defines a church plan as a plan established and maintained
for its employees (or their beneficiaries) by a church or a convention or association of
churches which is exempt from taxation under § 501.

Section 414(e)(2) provides, in part, that the term “church plan” does not include a plan
that is established and maintained primarily for the benefit of employees (or their
beneficiaries) of such church or convention or association of churches who are
employed in connection with one or more unrelated trades or businesses (within the
meaning of § 513); or if less than substantially all of the individuals included in the plan
are individuals described in § 414(e)(1) or § 414(e)(3)(B) (or their beneficiaries).

Section 414(e)(3)(A) provides that a plan established and maintained for its employees
(or their beneficiaries) by a church or 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.
See Advocate Healthcare Network v. Stapleton, 581 U.S. ____ (2017), holding that a
plan that is maintained by an organization described in § 414(e)(3)(A) may be a church
plan under § 414(e) even if it was not established by a church or a convention or
association of churches.

Section 414(e)(3)(B) generally defines “employee” of a church or a convention or
association of churches to include a duly ordained, commissioned, or licensed minister
of a church in the exercise of his or her ministry, regardless of the source of his or her
compensation, and an employee of an organization, whether a civil law corporation or
otherwise, which is exempt from tax under § 501, and which is controlled by or
associated with a church or a convention or association of churches.

Section 414(e)(3)(C) provides that a church or a convention or association of churches
which is exempt from tax under § 501 shall be deemed the employer of any individual
included as an employee under subparagraph (B).

Section 414(e)(3)(D) provides that 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.

Revenue Procedure 2011-44, 2011-39 I.R.B. 446, supplements the procedures for
requesting a letter ruling under § 414(e) relating to church plans. The revenue
procedure: (1) requires that plan participants and other interested persons receive a
notice in connection with a letter ruling request under § 414(e) for a qualified plan; (2)
requires that a copy of the notice be submitted to the IRS as part of the ruling request;
PLR-139751-16139751-16                       5

and (3) provides procedures for the IRS to receive and consider comments relating to
the ruling request from interested persons.

In order for an organization that is not itself a church or a convention or association of
churches to have a qualified church plan, it must establish that its employees are
employees or deemed employees of a church or a convention or association of
churches under § 414(e)(3)(B) by virtue of the organization’s control by or association
with the church or convention or association of churches. Employees of any
organization maintaining a plan are considered to be church employees if the
organization: (1) is exempt from tax under § 501; and (2) is controlled by or associated
with a church or a convention or association of churches. In addition, in order to be a
church plan, the administration or funding (or both) of the plan must be by an
organization described in § 414(e)(3)(A). To be described in § 414(e)(3)(A), an
organization must have as its principal purpose the administration or funding of the plan
and must also be controlled by or associated with a church or a convention or
association of churches.

With respect to your first ruling request, under the facts you have represented, Entity A
was formed by Religious Institute B, a religious community within Church C, to carry out
Religious Institute B’s mission in State D and certain other regions in the United States.
Entity A is a religious order within Church C. Entity A is incorporated under the laws of
State D, and its corporate members and directors must hold certain specified leadership
positions in the religious congregation of Entity A. Entity A is organized and operated
exclusively for religious purposes within the meaning of § 501(c)(3), and is exempt
from tax under § 501. Entity A is listed in Directory E of Church C.

You represent that none of Entity A’s employees are employed in connection with one
or more unrelated trades or businesses within the meaning of § 513 and no plan
participants are employed by for-profit entities.

Based on these facts, we conclude that Entity A is associated with Church C for
purposes of § 414(e). We further conclude that the employees of Entity A are deemed
to be employees of a church or a convention or association of churches by virtue of
being employees of an organization which is exempt from tax under § 501 and which is
controlled by or associated with a church or a convention or association of churches.

Committee F is the administrator of Plan X, and its sole purpose is to administer a
program of retirement plans that qualify as church plans. The members of Committee
F are appointed by the Board of Entity A, whose members consist of persons holding
leadership positions in Entity A, a religious order within Church C. Committee F is
subject to the oversight of the Board of Entity A, and is required to report to the Board
annually. Committee F’s charter provides that it shall administer the plan in a manner
consistent with the teachings and tenets of Church C and Religious Institute B.
PLR-139751-16139751-16                        6

Committee F includes two officers of Entity A, ex officio, and currently at least three of
the six members hold official positions within Entity A.

We thus conclude that Committee F is associated with Church C. Accordingly, Plan X
is maintained by an organization that is associated with a church or a convention or
association of churches, the principal purpose or function of which is the administration
of Plan X for the provision of retirement benefits for the deemed employees of a church
or a convention or association of churches.

Based on the foregoing facts and representations, we conclude that Plan X is a church
plan as defined in § 414(e) of the Code, and has been a church plan since its inception
on Date 1.

With respect to your second ruling request, § 410(d) allows a church or a convention of
churches which maintains any church plan to make an irrevocable election that certain
provisions of the Code and Title I of the Employee Retirement Income Security Act of
1974 (ERISA) shall apply to the plan as if it were not a church plan. Section 1.410(d)-1
of the Regulations provides that the plan administrator of the church plan may make the
election by attaching an affirmative statement to either the plan’s Form 5500 or to Form
5300, Application for Determination for Employee Benefit Plan. Section 1.410(d)-1 does
not provide for an alternative form of election. Accordingly, we conclude that the filing of
Forms 5500 and payment of PBGC premiums with respect to Plan X does not constitute
an election by Entity A under § 410(d).

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party, as specified in Rev. Proc. 2017-1, 2017-1 I.R.B. 1,
§ 7.01(15)(b). This office has not verified any of the material submitted in support of the
request for ruling, and such material is subject to verification on examination. The
Associate office will revoke or modify a letter ruling and apply the revocation
retroactively if there has been a misstatement or omission of controlling facts; the facts
at the time of the transaction are materially different from the controlling facts on which
the ruling was based; or, in the case of a transaction involving a continuing action or
series of actions, the controlling facts change during the course of the transaction. See
Rev. Proc. 2017-1, § 11.05.
PLR-139751-16139751-16                         7


In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.



                                       Sincerely,



                                       John Ricotta
                                       Branch Chief, Qualified Plans 3
                                       (Tax Exempt & Government Entities)




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