Hospital retirement plans qualify as church plans

Plain-English summary

A nonprofit hospital sponsored a defined benefit plan, a defined contribution plan, and a section 403(b) plan for its employees. The hospital operated under the sponsorship of a religious order, was listed in a church directory, and was governed through entities whose boards included members of the order. A committee whose principal purpose was administering the plans had a church-member majority and was chaired by a member of the religious order. The IRS concluded that the hospital was associated with the church, its workers were deemed church employees, and the committee was a qualifying church-associated plan administrator. The three plans therefore qualified as church plans under section 414(e), although the IRS expressed no opinion on whether they met sections 401(a) or 403(b).

Ruling snapshot

• Question: Do three retirement plans sponsored by a church-associated nonprofit hospital qualify as church plans under section 414(e)?
• Outcome: approved
• Key authorities: IRC §§ 414(e), 501, and 513; Rev. Proc. 2011-44; Advocate Healthcare Network v. Stapleton

Full text (IRS public release)

Internal Revenue Service                                 Department of the Treasury
                                                         Washington, DC 20224

Number: 201803007                                        Third Party Communication: None
Release Date: 1/19/2018                                  Date of Communication: Not Applicable
 414.00-00, 414.08-00
                                                         Person To Contact:
-----------------------------                            -----------------------
------------------------------                           Telephone Number:
--------------------------                               ----------------------
-----------------------------------------------          Refer Reply To:
                                                         CC:TEGE:EB:QP2
In Re: -------------------------------                   PLR-124338-17
                                                         Date:
                                                         October 20, 2017




Order A     = --------------------------------------------------------------------------------------------
              ----------------
Church C    = ---------------------------------
Directory D = -----------------------------------
City E      = --------------------
State F     = -------
Hospital H  = -----------------------------------------------------------
Entity N    = ------------------------------------------
Committee R = --------------------------------------------------------------------
Plan 1      = --------------------------------------------
Plan 2      = -------------------------------------------------------------------------
Plan 3      = -----------------------------------------------

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

This letter is in response to your request, submitted on your behalf by your authorized
representative, regarding the status of Plan 1, Plan 2, and Plan 3 (collectively “the
Plans”) as church plans 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:

Order A is a religious order within Church C. Order A is organized within and shares
common bonds with Church C. Order A is listed in Directory D and is an organization
described in § 501(c)(3) of the Code and exempt from tax under Code § 501(a).

One of the Order A’s ministries is to provide healthcare. A branch of Order A has been
active in City E, State F for more than ----- years. In -------, Order A began work to
PLR-124338-17                                 2

provide a healthcare facility in City E, which is now present-day Hospital H. Hospital H
is a nonprofit corporation under State F law. Hospital H is listed in Directory D as a
hospital associated with Church C. Hospital H is exempt from tax under Code § 501(a)
as an organization described in § 501(c)(3) pursuant to a group exemption letter
applicable to organizations listed in Directory D.

Hospital H was incorporated in ------- pursuant to Articles of Incorporation, which have
been amended from time to time. Hospital H’s Articles of Incorporation provide that if
Hospital H ever dissolves, any assets remaining after the payment of obligations shall
return to Order A. Hospital H’s Bylaws provide it is to operate exclusively for the benefit
of and carry out the purposes of Hospital H, under the sponsorship of Order A. The
Bylaws provide that Hospital H is governed by a Board of Trustees consisting of at least
20 and not more than 32 voting members, at least six of whom must be members of
Order A.

Hospital H’s Articles of Incorporation and Bylaws provide that the sole member of
Hospital H is Entity N, a State F nonprofit corporation. Entity N was incorporated in -----
-------. Entity N is listed in Directory D as the parent of Hospital H. Entity N is exempt
from tax under Code § 501(a) as an organization described in § 501(c)(3) pursuant to a
group exemption letter applicable to organizations listed in Directory D.

Entity N’s Articles of Incorporation and Bylaws specify it is to operate exclusively for the
benefit of and to carry out the purposes of Hospital H, under the sponsorship of Order
A. Entity N’s Articles of Incorporation provide that if Entity N ever dissolves, any assets
remaining after the payment of obligations shall return to Order A. The Bylaws specify
that Entity N is governed by a Board of Trustees, six of whom must be members of
Order A. A minimum of two-thirds of the members of Order A serving on the Board of
Trustees must vote to approve of any matter that relates directly to the religious
principles, moral philosophy, and mission of Order A. The same percentage of the
Order A Trustees must also approve any changes to the Entity N Articles of
Incorporation or Bylaws, as well as any proposed sale, merger, consolidation, or
dissolution of Entity N.

Hospital H’s Bylaws specify that the sole member (Entity N, whose Board of Trustees
includes at least six members of Order A) must approve of, among other things, any
matter that relates directly to the religious principles, moral philosophy, and mission of
Hospital H; any changes to the Hospital H Articles of Incorporation or Bylaws; and any
proposed sale, merger, consolidation, or dissolution of Hospital H.

Hospital H sponsors the Plans, which cover the employees of Hospital H. Plan 1 is
intended to meet the requirements of a defined benefit plan under § 401(a) of the Code.
Plan 2 is intended to meet the requirements of a defined contribution plan under
§ 401(a) of the Code. Plan 3 is intended to meet the requirements under § 403(b) of the
Code. None of the employees covered by the Plans are considered employed in
PLR-124338-17                                 3

connection with one or more unrelated trades or businesses within the meaning of §
513, and none are employed by for-profit entities.

Committee R is the administrator of the Plans. Committee R was established by
resolution of the Board of Trustees of Entity N, pursuant to Entity N’s Bylaws. The
principal purpose of Committee R is the administration of the Plans. Committee R’s
charter requires that Committee R act in accordance with the mission, vision and values
of Order A and with the religious identity of Hospital H. In addition, the charter provides
that members of Church C must make up the majority of the five members of
Committee R. Also, one or two members of Order A must serve on Committee R and
will be selected by the members of Order A who serve on the Board of Trustees. A
member of Order A serves as Chair of the committee, and the Chair is selected by the
members of Order A who serve on the Board of Trustees of Entity N.

In accordance with Revenue Procedure 2011-44, 2011-39 I.R.B. 446, a notice to plan
participants and other interested persons with respect to each of the Plans was
provided. This notice explained the consequences of church plan status.

Hospital H is requesting a private letter ruling that the Plans are church plans under
§ 414(e).

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 a 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.
PLR-124338-17                                 4

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 a convention or
association of churches.

Revenue Procedure 2011-44, 2011-39 IRB 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;
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 church plan under § 414(e), 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 a 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.

Under the facts you have represented, Order A is a religious order of women within
Church C. At least six members of Order A serve on the Board of Trustees of Entity N.
As the sole member of Hospital H, Entity N has control over certain matters involving
Hospital H's governance, and two-thirds of the members of Order A who serve on Entity
N’s Board of Trustees must approve of changes to the governance of Entity N (and in
effect to Hospital H). Hospital H’s Bylaws provide that it is to operate under the
PLR-124338-17                               5

sponsorship of Order A and in accord with the Order A ideals. Entity N and Hospital H
are listed in Directory D, and upon dissolution their assets revert to Order A.

Prayers are read twice daily over the Hospital H public address system, and a member
of the Church C clergy resides in the Hospital H building in order to perform Church C
services in the Hospital H chapel and to attend to the spiritual needs of Hospital H
residents. You represent that none of Hospital H’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.

We conclude that Hospital H is associated with Church C for purposes of § 414(e). We
further conclude that the employees of Hospital H 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 R is the administrator of the Plans, and its sole purpose and function is the
administration of the Plans. Committee R’s charter provides that it will act in
accordance with the mission, vision and values of Order A, and with the Church A
identity of Hospital H. Committee R consists of five members, the majority of whom
must be members of Church C. A member of Order A acts as the chair of Committee
R and is selected (and can be removed) by the members of Order A who also serve on
the Board of Trustees of Hospital H. We conclude that Committee R is associated with
Church C. Accordingly, the Plans are 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 the Plans for the provision of retirement
benefits for the deemed employees of a church or a convention or association of
churches.

We conclude that the Plans are church plans within the meaning of § 414(e).

This letter expresses no opinion as to whether the Plans satisfy the requirements of
§§ 401(a) or 403(b).

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. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

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
PLR-124338-17                                6

provides that it may not be used or cited as precedent.

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,




Lauson Green
Branch Chief, Qualified Plans Branch 2 (Acting Special Counsel)
(Tax Exempt & Government Entities)


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