Church-controlled social-service ministry's pension plan qualifies as a church plan

Plain-English summary

A nonprofit social-service ministry asked whether its frozen defined benefit pension plan qualified as a church plan under section 414(e). A church official was the ministry's sole member, appointed its board and the plan committee, and the ministry was listed in the church directory under a group exemption. The church jurisdiction also provided substantial funding, and the ministry's employees participated in other church benefit plans. The plan committee's sole purpose was to administer the pension plan and other employee benefit plans, and no participants worked for a for-profit entity or unrelated trade or business. The IRS concluded that the ministry and committee were controlled by or associated with the church and that the pension plan was a church plan.

Ruling snapshot

• Question: Was the nonprofit ministry's defined benefit plan a church plan under section 414(e)?
• Outcome: Approved.
• Key authorities: IRC §§ 414(e), 501, and 513; Rev. Proc. 2011-44; Advocate Health Care Network v. Stapleton, 581 U.S. ___ (2017).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201811008 Third Party Communication: None
Release Date: 3/16/2018 Date of Communication: Not Applicable
Index Number: 414.08-00
Person To Contact:
------------------------------------------------------- -----------------------------, ID No. -------------
------------------------------------------------------------ -----------------
------------------------------------------ Telephone Number:
---------------------------------- ----------------------
Refer Reply To:
CC:TEGE:EB:QP3
PLR-121335-17
Date:
December 14, 2017

Legend:

Entity A = -------------------------------------------------------
Church Official B = ----------------------------------------------------------------------------------
---------------
Church Jurisdiction C = ----------------------------------------
Church D = --------------------------------------
Church Directory E = ----------------------------------------
Prior Name F = ----------------------------------------------------------------------------------
Prior Name G = --------------------------------------------------------------------
Prior Name H = -----------------------------------------------------------
Committee I = ---------------------------
Entity M = -------------------------------------------------------------------
Plan X = ----------------------------------------------------------------------------------
--------

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

This letter is in response to Entity A’s request, submitted on its behalf by its 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 Entity A’s behalf:

Entity A was originally established by Church Official B, and has been incorporated as a
non-profit entity. Entity A is a ministry of Church Jurisdiction C and is listed in Church
Directory E. Entity A’s purpose includes furthering the general welfare and common
good of the public by establishing, organizing, and maintaining a Church D agency
which makes available social services to residents of a particular geographic area.

PLR-121335-17 2

Entity A has been known by several names over the years, specifically Prior Name F,
Prior Name G, and Prior Name H.

The sole member of Entity A is ex-officio Church Official B or his canonical successor
as determined by specified authority in Church D. As the sole member, Church
Official B elects all of the members of the Board of Directors of Entity A (the “Board”) in
Church Official B’s sole and absolute discretion. Upon Entity A’s dissolution, Entity A’s
property is to be transferred to a § 501(c)(3) organization listed in Church Directory E for
the purpose of assisting the poor.

Church Jurisdiction C is a principal provider of funds that support Entity A programs. In
2016, Church Jurisdiction C provided more than ---- million of financial support to
Entity A. The Chief Executive Officer of Entity A serves as the ---------------------------------
--------------------------- for Church Jurisdiction C.

Entity A is exempt from federal income tax under § 501 as a subordinate organization
under Entity M’s § 501(c)(3) group tax exemption letter, which applies to organizations
listed in Church Directory E.

Entity A established Plan X, a defined benefit plan qualified under § 401(a), effective in
1978, in order to provide retirement benefits to Entity A employees. Plan X was frozen
several years ago, and Entity A employees subsequently began participating in the
§ 401(k) plan of Church Jurisdiction C. Entity A employees have always participated in
Church Jurisdiction C’s health plan.

Committee I has been established by Entity A to be responsible for administering the
employee benefit plans maintained by Entity A, including Plan X. Committee I has
overall responsibility and authority to manage and control the operation and
administration of Plan X (however, Entity A remains responsible for determining whether
an individual is eligible to participate in Plan X). The members of Committee I are
appointed by Church Official B. Committee I is comprised of three members: the Chair
of the Entity A Board’s Finance Committee, the Vice Chair of the Board of Entity A, and
the Chief Financial Officer of 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 trades 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.

The plan administrator of Plan X never made an election under § 1.410(d)-1 of the
Federal Income Tax Regulations with regard to Plan X.

PLR-121335-17 3

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

Based on the foregoing, Entity A requests a ruling that Plan X is a church plan within the
meaning of § 414(e) of the Code.

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 Health Care 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

PLR-121335-17 4

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; 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 the ruling request, under the facts you have represented, Entity A is a
ministry of Church Jurisdiction C. The sole member of Entity A is Church Official B, ex
officio, and Church Official B elects the members of the Board of Entity A. Entity A is
listed in Church Directory E, and is exempt from tax under § 501 pursuant to a group tax
exemption that covers entities listed in Church Directory E. Upon Entity A’s dissolution,
its residual assets are to be distributed to another entity listed in Church Directory E.
Church Jurisdiction C is a principal provider of funds that support Entity A programs. In
2016, Church Jurisdiction C provided more than ---- million of financial support to
Entity A. The Chief Executive Officer of Entity A serves as the ---------------------------------
--------------------------- for Church Jurisdiction C. The employees of Entity A participate in
certain employee benefit plans of Church Jurisdiction 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 controlled by or associated with
Church D 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

PLR-121335-17 5

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 I is the plan administrator of Plan X, and its sole purpose is to administer
Plan X and certain other benefit plans for employees of Entity A. The members of
Committee I are appointed by Church Official B.

We thus conclude that Committee I is controlled by or associated with Church D.
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).

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) 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-121335-17 6

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 T. Ricotta
                                   Branch Chief, Qualified Plans Branch 3
                                   Office of Associate Chief Counsel
                                   (Tax Exempt and Government Entities)

cc: