PLR 1309028: IRS recognizes three retirement plans as church plans

Plain-English summary

The IRS considered three retirement plans sponsored by a tax-exempt corporation controlled by an association of churches. The corporation operated senior housing and related religious services, and the association controlled its membership and board. The IRS concluded that the association was an association of churches, the corporation was controlled by or associated with it, and the plans were not primarily for employees engaged in unrelated trades or businesses. The IRS therefore ruled that all three plans were church plans under IRC § 414(e), effective January 1, 2009. The ruling did not address whether the plans separately qualified under IRC § 401(a) or § 403(b).

Ruling snapshot

• Question: Are Plans X, Y, and Z church plans under IRC § 414(e)?
• Outcome: Approved
• Key authorities: IRC §§ 414(e), 501, and 513; Rev. Proc. 2011-44; Rev. Rul. 74-224

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201309028
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

a

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

TAX EXEMPT
U.I.L.: 414.08-00 DEC 3 2012

XXXXXXXXXXKXXXXXXXX
XXXXXXXXXXKXXXXXKXXX
XXXXXXKXXXXXXXXKXXX

Attn: xxxxxxxxxxxxXx

Legend:

Corporation A = XXXXXXXXXXXXAXXXXXXXKXX
Association B = XXXXXXXXXXXXXXXXXXXXX
Convention C = XXXXXXXXXXXXAXXXXXXXXX
Convention D = XXXXXXXXXXXXXXXXXXXXN
Clergy H = XXXXXXXXXXXXXXXXXXXXXX
Church A = XXXXXXXXXXXXXXXXXXXAXXX
Religion B = XXXXXXXXXXXXXXXXXXXXXX
Hospital M = XXXXXXXXXXXXAXXXXXAXXXXX
City L = XXXXXXXXXXXXXXXXXXAXXXX
State S = XXXXXXXXXXXXXXXXXXXXX
Board D = XXXXXXXXXXXXAXXXKKXKXXN
Plan X = XXXXXXXXXXXXXXXXXXXXX
Plan Y = XXXXXXXXXXXXXXXXKXXX

Plan Z = XXXXXXXXXXXXXXKXXKXXKX

Committee F = XXXXXXXXXXXXXXXXXXKXX

Dear xxxXxxXXxx:

This letter is in response to your request dated xxxxxxxxxxx, as supplemented by
correspondence dated xxxxxxxxxx and xxXxxxxxxxx, Submitted on your behalf by
your authorized representative regarding the church plan status of Plan X, Plan
Y, and Plan Z within the meaning of section 414(e) of the Internal Revenue Code
(“Code”).

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

Corporation A is a State S nonprofit corporation classified as a public charity
under section 501(c)(3) of the Code. Corporation A was first organized in 18
and first incorporated as a pro-forma decree corporation in 18 by the
legislature of State S.In 18 , Corporation A began to operate Hospital M, the
first Religion B hospital in City L of State S.

From 18 until 19 , Corporation A continuously operated a hospital and
nursing school under the control of Association B. In addition, over the years it
engaged in other charitable activities, such as the operation of an orphanage,
retirement center, and nursing home. These efforts were directed with the
intention of more efficiently carrying out the collective religious ministries of
Association B to the ill, needy, and elderly.

In 19 , Corporation A chose to redirect its activities by terminating its hospital
operation and refocusing its resources into its other charitable endeavors in
furtherance of its religious mission under Church A doctrine. Corporation A’s
current charitable endeavors consist of providing senior housing and services.

The members of Corporation A are church congregations that form Association
B. Association B controls Corporation A. Each church in Association B is exempt
from federal income taxation under the group exemption ruling of either
Convention C or Convention D.

Association B has a distinct legal existence, recognized creed, a distinct legal
history, established place of worship, regular congregations, regular religious
services, Sunday schools for the religious instruction of the young, and schools
for the preparation of their ministers. Association B has carried out the churches’
collective religious and charitable ministries to the ill, needy, and elderly.
Corporation A operates church homes for aging people. [redacted] percent of its
residents are members of Church A.

Association B’s members are the sole members of Corporation A. Section 2.1 of
Corporation A’s bylaws limits membership to members of Association B within
City L. Each member is entitled to appoint one Regular Delegate, who ordinarily
will be the President of the church. If the church does not have a President,
another equivalent officer shall serve as the Regular Delegate and the Member's
Senior Pastor shall serve as the Alternate Delegate. Delegates of the member
churches elect the Board of Directors of Corporation A according to section 3.5 of
the Bylaws.

All directors must be communicant members in good standing of the churches
that are Members of Corporation A. In addition, at least two directors on the
Board of Directors shall be professional church workers from churches that are
Members of Corporation A.

Corporation A’s communities are served by Clergy H, specially trained for
ministry with older persons. In addition, Clergy H serve in hospice care and are
on call 24-hours a day, 7-days a week to residents and their families. Clergy H
host Sunday and midweek worship services at Corporation A’s communities,
teach Bible classes, and provide grief support and private communion. Clergy H
assist residents of the communities who choose to plan a funeral or a memorial
service to be held in the chapel on campus. Corporation A also offers a Clinical
Pastoral Education program through which student chaplains serve at
Corporation A’s communities, making pastoral contact with residents, families or
staff through visits, Bible classes, worship devotions and community activities.

Corporation A is a recognized service organization of Convention C and affiliated
with Convention D. These associations with Convention C and Convention D
require very specific obligations of Corporation A, including identification with the
Church A mission and ministry, compliance with doctrinal and religious practice
standards, adoption of specific denominational language for inclusion in its
governing instruments and engaging in program activities that are in harmony
with the programs of the boards of the Church A denomination. As part of the
association requirements, the bylaws of Corporation A state that: “it is the intent
of the Corporation to be recognized by Convention C and affiliated with
Convention D and function in accordance with the criteria and provisions of each
church body.” Corporation A is listed in the official directory of related
organizations of both Convention C and Convention D.

Corporation A’s corporate documents ensure that Association B has retained
influence over Corporation A and will continue to retain such influence. The
Bylaws provide that the business and property of Corporation A shall be
managed and controlled by Board D. Association B may remove any director for
whatever reason or cause as they deem best in their sole discretion, by a
majority vote. Association B, though its election of the Board of Directors of
Corporation A, have also reserved to themselves certain important powers
regarding the governance of Corporation A including powers relating to the

amendment of the Bylaws, and the merger, dissolution, sale or disposition of all
or substantially all of Corporation A’s assets.

Corporation A sponsors Plan X, Plan Y, and Plan Z (“Plans”) each of which is
administered by Committee F. The members of Committee F are appointed by
Board D and three officers (the President, Vice- President, Human Resources
and Chief Financial Officer) of Corporation A.

Plan X is a defined benefit plan that was established in 19. All of the
participants in Plan X are employees of Corporation A, but the plan became
closed to new participants in 20. , so employees of facilities that were acquired
by Corporation A shortly before 20 _ and all new employees of Corporation A
on or after November 26, 20: are not eligible to participate. In addition, leased
employees and the employees covered by a denomination qualified plan of
Convention C are not eligible to participate. Committee F has full power and
authority to administer Plan X in all respects. Plan X has not made an election
under section 410(d) of the Code to be subject to the Employee Retirement
Income Security Act (“ERISA”).

Plan Y is a defined contribution plan that was established in 19! . All employees
of Corporation A are eligible to participate in Plan Y, except that any ordained or
commissioned minister who participates in a retirement plan of the Church A
denomination in which he or she was ordained or commissioned (either
Convention C or Convention D) is not eligible to participate. Committee F has full
power and authority to administer Plan Y in all respects. Plan Y has not made an
election under section 410(d) of the Code to be subject to ERISA.

Plan Z is a defined contribution plan that was established in 20. All employees
of Corporation A are eligible to participate in Plan Z, except that any ordained or
commissioned minister who participates in a retirement plan of the Church A
denomination in which he or she was ordained or commissioned (either
Convention C or Convention D) is not eligible to participate. Committee F has full
power and authority to administer Plan Z in all respects. Plan Z has not made an
election under section 410(d) of the Code to be subject to ERISA.

In accordance with Revenue Procedure 2011-44, Notice to Employees with
reference to the Plans was provided on November 18, 20. The notice
explained to participants of the Plans the consequences of Church Plan Status.

Based on the foregoing, you request a ruling that the Plans are Church Plans
within the meaning of section 414(e) of the Code effective January 1, 20

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 a convention or association of churches which is exempt from taxation under
section 501 of the Code.

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 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
under section 414(e) of the Code for a qualified plan; (2) requires that a copy of
the notice be submitted to the Internal Revenue Service (“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 convention or association
of churches to have a qualified church plan, it must establish that its employees
are employees or deemed employees of the 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 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 section
501 of the Code; and, (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 a convention or association of churches.

Revenue Ruling 74-224, 1974-1 C.B. 61, concludes that an exempt organization
whose governing membership is comprised of churches of different
denominations qualifies as an association of churches within the meaning of
section 170(b)(1)(A)(i) of the Code for purposes of classification as an
organization that is not a private foundation within the meaning of section 509(a)(1)
of the Code. The revenue ruling also provides that although the term “convention
or association of churches” has an historical meaning generally referring to a
cooperative undertaking by churches of the same denomination, nothing in the
legislative history or religious history of the term prevents its application to a
cooperative undertaking of churches of differing denominations, assuming such
convention or association otherwise qualifies for recognition of exemption as an
organization described in section 501(c)(3) of the Code.

In this case, Corporation A is a not-for-profit corporation which is exempt from
federal income tax under section 501(a) of the Code as an organization
described in section 501(c)(3) of the Code. Association B that controls
Corporation A is comprised of churches from two different denominations, but the
churches all are associated with Church A, share core religious beliefs, and
engage in the cooperative undertaking of carrying out the religious and charitable
ministries of the churches. For church plan rules, Association B constitutes an
“association of churches.”

All of the employees covered by the Plans are employees of Corporation A, a
tax-exempt organization that is controlled by Association B. The members of
Board D are elected entirely by Association B. All of the directors must be
members of Association B. Association B may remove any director for whatever
reason or cause as they deem best in their sole discretion, by a two-thirds
majority vote. Members of Association B also provide financial and volunteer
support for Corporation A. Thus, Corporation A is controlled by the association of
churches within the meaning of section 414(e)(3)(A) of the Code.

Corporation A also is associated with Convention C and Convention D and
shares common religious bonds and convictions with them. In view of the control
of Board D of Corporation A by Association B and the relationship of Association
B to Corporation A, the employees of Corporation A are deemed employees of a
church or of a convention or association of churches under section 414(e)(3)(B)
of the Code. Additionally, Association B is the employer of Corporation A for
purposes of section 414(e)(3)(C) of the Code.

No employees in the Plans are employed in connection with an unrelated trade
or business within the meaning of section 513 of the Code. All of the employees
who are covered by the plans are employees of Corporation A which is
controlled by Association B. Thus, the plans are not maintained primarily for the
benefit of employees employed in connection with one or more unrelated trades
or businesses within the meaning of section 513 of the Code and satisfy the
requirements of section 414(e)(2)(A) of the Code.

Committee F serves at the pleasure of Board D and its principal purpose or
function is to administer the Plans in accordance with their terms. Committee F is
controlled by or associated with Association B through its relationship with Board
D. The appointment and removal of all committee members of Committee F is
made by Board D or Corporation A which, in turn, is elected entirely and thus is
controlled by Association B. Therefore, Committee F is an organization, the
principal purpose or function of which is the administration or funding of the plans
or programs for the provision of retirement benefits for employees of
Corporation A and qualifies as an organization described in section 414(e)(3)(A)
of the Code.

Based on the foregoing facts and representations, we conclude that the Plans
are church plans within the meaning of section 414(e) of the Code effective
January 1, 2009.

This letter expresses no opinion as to whether Plan X and Plan Y satisfy 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,

This letter also expresses no opinion as to whether Plan Z satisfies the
requirements of section 403(b) of the Code.

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.

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 xxxxxXxXxXXXXXXXXX,
SE:T:EP:RA:T3, at xxxxxxxXxXXXXX.

Sincerely yours,

With~ be, WES
William B. Hulteng
Manager, Employee Plans Technical

Enclosures:

Deleted Copy of letter ruling
Notice 437

cc: XXXXAXXXXXAXKX