PLR 1230031: IRS confirms that a college pension plan is a church plan

Plain-English summary

A college asked the IRS whether its defined benefit pension plan qualified as a church plan under IRC § 414(e). The college was affiliated with a religious convention, shared its religious bonds and convictions, received financial and organizational support, and maintained religious programs and practices. The IRS concluded that the college was associated with a church or convention of churches, that the plan administrator met the church-plan administration requirements, and that the plan had been a church plan since January 1, 1974. It also concluded that the plan was not maintained primarily for employees working in unrelated trades or businesses.

Ruling snapshot

• Question: Does the college's defined benefit plan qualify as a church plan under IRC § 414(e), including despite a small number of employees working in an unrelated trade or business?
• Outcome: Approved
• Key authorities: IRC §§ 401(a), 410(d), 414(e), 501, 511, 513, and 6110(k)(3); Rev. Proc. 2011-44

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

201230031

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

U.I.L.: 414.08-00

MAY 03 2012

xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx

Attn: xxxxxxxxxxxxx

SE:T:EP:RA:T2

Legend:

College A = xxxxxxxxxxxxxxxxxxxxxx
Convention B = xxxxxxxxxxxxxxxxxxxxxxxx
Convention C = xxxxxxxxxxxxxxxxxxxxxxxx
Association S = xxxxxxxxxxxxxxxxxxxxxxx
Commission H = xxxxxxxxxxxxxxxxxxxxxxx

Church A = xxxxxxxxxxxxxxxxxxxxxxx
State B = xxxxxxxxxxxxxxxxxxxxxxx
Board D = xxxxxxxxxxxxxxxxxxxxxxx
Plan X = xxxxxxxxxxxxxxxxxxxxxxx
Committee F = xxxxxxxxxxxxxxxxxxxxxxx

Religion Z = xxxxxxxxxxxxxxxxxxxxxxx

Dear xxxxxxxxxx:

This letter is in response to your request dated xxxxxxxxx, as supplemented by
correspondence dated xxxxxxxxxx, xxxxxxxxxxxx, xxxxxxxxxxxxxxxx,
xxxxxxxxxxxx, xxxxxxxxxxxxx, xxxxxxxxxxxx, xxxxxxxxxxxxxxx,
xxxxxxxxxxxx, and xxxxxxxxxxxx, submitted on your behalf by

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your authorized representative regarding the church plan status of Plan X within
the meaning of section 414(e) of the Internal Revenue Code (Code).

The following facts and representations have been submitted on your behalf:

College A is a non-profit corporation located in State B. College A is a private,
four year co-educational, comprehensive university of liberal arts and sciences
and professional studies and was founded in 1826. College A has been affiliated
with Convention B since 1850 and is a member of Association S. College A
received a ruling dated October 11, 1971, from the Internal Revenue Service
(IRS) that it is exempt from Federal Income Taxes under Section 501(c)(3) of the
Code.

Prior to October, 1994, College A was governed by a Board of Trustees, all of
whom were chosen by Convention B except that between 1880 and 1900 nine
out of thirty-six trustees then constituting the Board could be chosen by
Convention C.

On October 14, 1994, new Amended and Restated Articles of Incorporation were
adopted (Current Articles). Under the Current Articles, the Board consists of
twenty-four trustees, consisting of three classes of eight trustees. All trustees are
required to be members of Religion Z. All trustees are elected by Convention B.
However, the trustees elected by Convention B must be jointly approved by the
Nominating Committee of Convention B and by Board D (or a committee acting
on behalf of Board D).

The Current Articles state that College A’s purpose is to operate a college and
conduct related enterprises with the Christian-oriented aims and ideals of
Religion Z as expressed generally in the Religion Z Faith and Message of 1963.
Similarly, College A’s Mission Statement declares College A’s Religion Z
affiliation to be one of its chief assets and a harmonious relationship with
Convention B to be of great importance. College A employs a person at the Vice
President level specifically to attend to relationships with Convention B and its
member churches. The Mission Statement reflects College A’s conviction that
serving society is part of Church A’s mission, including service through worship,
evangelizing, ministry, missions, fellowship, and discipleship. As part of this
mission, College A promotes the spiritual, social, emotional, and physical
development of its students and encourages them to utilize their skills, talents,
and abilities as they pursue meaningful careers, life-long learning, and service to
God and others. Students are required to attend chapel services on one weekday
each week. The chapel service is a Religion Z service.

College A’s Faculty Handbook provides that in filling vacancies, consideration is
given to members of evangelical Christian denominations, with the understanding
that first preference will be given in each case to active members of Religion Z
churches, provided that academic and professional standards are met. College A

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is a member of Association S and its affiliation is listed in all publications
concerning College A.

College A emphasizes liberal arts and pre-professional programs, especially
those undergraduate, graduate, and professional programs that offer
opportunities for service. Six credit hours of “Introduction to the Old and New
Testaments of the Bible” are required of each student. College A offers degree
programs allowing students to obtain a bachelors degree with either a major in
Christian Studies or a minor in Bible & Christian Heritage, Philosophy, or
Christian Education. Students may also enroll in a course offered by the
Department of Christian Studies and Philosophy as part of a non-degree program
of pre-theological studies. In addition, College A sponsors an Institute for
Christian Leadership to provide academic and practical training for pastors,
evangelists, church staff persons, and lay leaders.

Convention B directly supports the maintenance of the Religion Z Student Union
at College A. This includes the payment of a salary supplement for the director of
the Religion Z Student Union. College A explicitly inquires into the church
affiliation and activities of each prospective student. Although there is no express
policy favoring Religion Z applicants, many of College A’s scholarships are
available only to Religion Z students. Banners on the campus publicly express
Religion Z affiliation and leadership of College A. Major college events frequently
take place at Religion Z churches. Only one non-Religion Z denomination has a
student organization on campus.

College A’s library is the depository for the book and manuscript collection
Commission H. This includes a history of Religion Z pastors in State B. College A
and Commission H jointly employ the librarian and clerical staff that catalogs and
administers the collection. The salary for those persons is indirectly paid by
Convention B, but College A provides benefits for them, including participation in
Plan X. The Board of Trustees of College A serves as the governing body for
Commission H and the head of College A’s history department serves in an
advisory capacity.

Convention B provides the largest single external source of funding for College
A, approximately seven percent of its annual budget. The Convention B
contribution to College A is awarded based on the number of Religion Z students.

College A submits a report on the operation of College A to the annual meeting
of Convention B and a copy of the audited financial statements of College A is
normally printed in the bulletin distributed to messengers (delegates) at the
convention for their review.

The Articles of Incorporation provide that upon discontinuance of College A by
dissolution and liquidation, all of its assets must be transferred to Convention B,
unless Convention B does not exist at that time. In that event, the assets must be

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transferred to another qualified educational, religious or other similar organization
selected by the Board.

College A has approximately 450 employees. Substantially all of these are
employed in the education endeavors of College A or in supporting roles for
those endeavors. At any time, approximately four to five employees (about one
percent) may be employed at an AM-FM radio station operated by College A for
student training and experience. These employees are treated as employees of
College A. Although some of these employees work on a part-time basis, they
are eligible to participate in Plan X to the extent that they meet the participation
requirements. Any net taxable income derived from the radio station is reported
as unrelated business taxable income to the extent required by section 511 of the
Code.

College A adopted Plan X, a defined benefit plan, effective January 1, 1974.
Plan X was restated January 1, 1976 to comply with the requirements of the
Employee Retirement Income Security Act of 1974. Plan X has been amended
and restated several times in accordance with the changing requirements of the
Code. Plan X’s most recent restatement was in 1997 and it received its most
recent favorable determination letter on August 23, 2002.

Plan X is administered by Committee F which was established on March 18,
1976, and its sole function is to administer Plan X. Committee F consists of
seven members. Board D which is controlled by or associated with Convention B
appoints Committee F. Members of Committee F serve at the pleasure of Board
D which has the power to appoint and remove members of Committee F at will.

It is represented that no election under Code section 410(d) has ever been filed
for Plan X or any other plan sponsored by College A. It is further represented that
Plan X is qualified under section 401(a) of the Code.

In accordance with Revenue Procedure 2011-44, Notice to Employees with
reference to Plan X was provided on November 9, 2011. This notice explained to
participants of Plan X 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 section 414(e) of the Code for all years since the plan was
established and that the inclusion in Plan X of a limited number of employees
who work in an unrelated trade or business does not adversely affect that ruling.

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

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Section 414(e) was added to the Code by section 1015 of ERISA. Section
1017(e) of ERISA provided that section 414(e) applied as of the date of ERISA’s
enactment. However, section 414(e) was subsequently amended by section
407(b) of the Multiemployer Pension Plan Amendments Act of 1980, Pub. Law
96-364, to provide that section 414(e) was effective as of January 1, 1974.

Section 414(e)(2) of the Code 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 section 513 of the Code); or if less than
substantially all of the individuals included in the plan are individuals described in
section 414(e)(1) of the Code or section 414(e)(3)(B) of the Code (or their
beneficiaries).

Section 414(e)(3)(A) of the Code provides that 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.

Section 414(e)(3)(B) of the Code 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 section 501
of the Code, and which is controlled by or associated with a church or a
convention or association of churches.

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

Section 414(e)(3)(D) of the Code provides that an organization, whether a civil
law corporation or otherwise, is associated with a church or a convention or
association of churches if the organization 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 section 414(e) of the Code 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

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under section 414(e) of the Code 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 convention or
association of churches under section 414(e)(3)(B) of the Code by virtue of the
organization’s control by or affiliation with a 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 section
501 of the Code; (2) is controlled by or associated with a church or 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 section 414(e)(3)(A) of the Code. To be described in section
414(e)(3)(A) of the Code, 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 convention or association of churches.

In this case, College A is an organization described in section 501(c)(3) of the
Code, which is exempt from tax under section 501(a) of the Code. College A is
controlled by Convention B, a convention with Church A. College A was
established and is governed by Convention B. College A promotes the Religion Z
faith, receives significant financial and non-financial assistance from Convention
B, and a preference is shown for Religion Z faith in hiring faculty members.
College A is a member of Association S and its affiliation is listed in all
publications concerning College A.

College A is associated with Convention B by sharing common religious bonds
and convictions. College A’s Articles of Incorporation specifically state that the
promotion of Religion Z faith and ideals is the reason for College A’s existence.
Church A’s Faith and Message Statement of 1963 is cited as the standard to be
followed.

College A’s Mission Statement declares that College A’s affiliation with Church A
is one of its chief assets and declares such harmonious relationship with Church
A members in State B through financial support and prayers and by entrusting
their children to College A. College A employs a person to promote relationships
with Convention B and its member churches. The Mission Statement reflects
College A’s conviction that serving society is part of Church A’s mission,
including service through worship, evangelizing, ministry, missions, fellowship,
and discipleship. As part of this mission, College A promotes the spiritual, social,
emotional, and physical development of its students and encourages them to
utilize their skills, talents, and abilities as they pursue meaningful careers, life

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long learning, and service to God and others. Students are required to attend
chapel services on one weekday each week.

College A emphasizes liberal arts and pre-professional programs, especially
those undergraduate, graduate, and professional programs that offer
opportunities for service. Six credit hours of Introduction to the Old and New
Testaments of the Bible are required of each student. College A offers degree
programs allowing students to obtain a bachelors degree with either a major in
Christian studies or a minor in Bible and Christian heritage, Philosophy, or
Christian Education.

In addition, College A sponsors an Institute for Christian Leadership to provide
academic and practical training for pastors, evangelists, church staff persons,
and lay leaders. Convention B directly supports the maintenance of the Student
Union at College A by supplementing the salary for the director of the Student
Union. College A explicitly inquires into the church affiliation and activities of
each prospective student. Many of College A’s scholarships are available only to
Religion Z students. Banners on the campus publicly express Church A’s
affiliation and leadership of College A. Major college events frequently take place
at Religion Z churches.

In view of the stated purpose of College A, its organization and structure, its
actual activities and interrelationship with its member churches, its common
religious bonds and convictions it shares with Convention B and Church A, we
conclude that College A is “associated “ with a church or a convention or
association of churches within the meaning of section 414(e)(3)(D) of the Code,
and the employees of College A meet the definition of employee in section
414(e)(3)(B) of the Code and 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 section 501 of the Code and which
is controlled by or associated with a church or a convention or association of
churches.

In addition, it is represented that Plan X is administered by Committee F which is
controlled by Board D which has the power to appoint and remove members of
Committee F. Board D is associated with Church A through Convention B.
Committee F’s primary purpose and function is the administration of Plan X.
Because Board D and Convention B are associated with Church A within the
meaning of section 414(e)(3)(D) of the Code, Committee F is therefore
considered to be associated with a church or convention or association of
churches with the meaning of section 414(e)(3)(A) of the Code through its
relationship with Board D and Convention B.

Accordingly, the administration of Plan X satisfies the requirements regarding
church plan administration under section 414(e)(3)(A) of the Code, and we find
that Plan X is maintained by an organization that is associated with a church or

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convention or association of churches, and the principal purpose or function of
which is the administration of a church or convention or association of churches.

Based on the foregoing facts and representations, we conclude that Plan X is
and has been a church plan within the meaning of section 414(e) of the Code
since January 1, 1974. In addition, we conclude that Plan X has not been
maintained primarily for the benefit of employees who are employed in
connection with one or more unrelated trades or business as defined in section
513 of the Code.

This letter expresses no opinion as to whether Plan X satisfies the requirements
for qualification under Code section 401(a). The determination as to whether a
plan is qualified under section 401(a) is within the jurisdiction of the Manager,
Employee Plans Determinations Program, Cincinnati, Ohio.

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

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file in this office.

If you have any questions regarding this letter, please contact xxxxxxxxxxxxxxx,
SE:T:EP:RA:T3, at xxxxxxxxxxxxxxx

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:

Deleted Copy of letter ruling
Notice 437

cc: