IRS recognizes a university retirement plan as a church plan retroactively

Plain-English summary

The IRS ruled that a private university's defined contribution retirement plan qualified as a church plan under IRC § 414(e). The university was tax-exempt, closely connected to a religious order, and governed through members and officials with formal ties to that religious organization. The IRS also found that the retirement committee administering the plan was controlled by or associated with a church. The ruling applied retroactively to the plan's establishment because the committee was formally established within the applicable correction period. The IRS did not express an opinion on whether the plan satisfied § 401(a) or on other tax consequences.

Ruling snapshot

• Question: Did the university's defined contribution retirement plan qualify as a church plan under IRC § 414(e)?
• Outcome: Approved, with retroactive effect to the plan's establishment.
• Key authorities: IRC §§ 414(e), 401(a), 410(d), 501, and 513; Rev. Proc. 2011-44; IRC § 6110(k)(3).

Full text (IRS public release)

DEPARTMENT OF THE TREASURY 201333024

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND MAY 22 2013

GOVERNMENT ENTITIES
DIVISION

U.I.L 414.08-00

ERKKEKEKEKEKKEKEREEEREEKEREEEEREEEE
KRKEKKKREKKKKREKREEEK

KEKKKKKEKEKEEKEEKE

KREKKKREKEKKEEKKEKEEREEEEKEEREKREREEEEEEKREEEKEEE

Plan A = REKKKKEKEREREREEEREREREREEEEREREEEEREREEEEREEREREEE
University B = KRKKKKEKEREEEKEKEKREEEEEREEREREREE
Order C - RKKEKKKEEEEKEREEEERERE
ini -~ EKEKKKKKREKKEREEKEEKEEKEEERE
Religion D =
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Province E =
Council F = REKEREKEREREREEREEEEEKEEEREREKEEEREEEKREEEEEEEEEREEEERERKEREERERERERERE

i _ EREKEKRKEEERREREREREREEREERRERER

Directory G =

KEKKEKERKKEKEREREREREREREEREREKEREEEREEEEREREREREREREEKEREEEEEEEEEEK

Congregation H = [illegible]

Dear KREKKEKKEEKE,

This letter is in response to your request dated August 8, 2012, as supplemented on
December 4, 2012, submitted on your behalf by your authorized representative,
regarding the church plan status of Plan A within the meaning of section 414(e) of the
Internal Revenue Code (the “Code’).

The following facts and representations have been submitted under penalty of perjury in
support of the ruling requested:

University B, a private university, is a non-profit corporation exempt from taxation as an
organization described in Section 501(c)(3) of the Code. The University was founded in

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1955 by members of Order C, a religious order within Religion D. In the United States,
Order C’s congregation is organized as Province E.

Under the laws of Religion D, Province E is controlled by the General Administration of
Order C, the world-wide parent to all Order C congregations. The General
Administration, in turn, is governed by the decisions of Congregation H, an office within
the headquarters of Religion D. Province E is thus controlled by Religion D and is an.
institution of that church. Province E is led by Council F.

University B is a membership organization, whose members (the “Members”) oversee
University B’s Board of Regents. Under University B’s articles of incorporation, the
Members consist of (a) the official head of Council F, (b) all other members (currently 7)
of Council F, (c) the President of University B, and (d) the Chair of University B’s Board
of Regents. Eighty Percent of the Members of University B are thus also members of
Council F. University B is listed in Directory G, the official directory of Religion D.
University B’s articles of incorporation provide that upon dissolution of University B, its
assets are to be distributed to Province E or its successor.

University B’s governing body is its Board of Regents. University B’s by-laws provide
that each nominee to the Board of Regents must be approved by the Members of
University B. The Members also have authority to remove a Regent at any time.
University B’s by-laws additionally state that Council F may appoint up to two of its
members to serve as Regents.

University B’s by-laws provide that the head of the Council F serves as Chancellor of
University B and as a member of the Board of Regents. The Chancellor's duties are to
ensure and enhance Order C’s presence at University B, to be an ex officio member of
the Board of Regents, to maintain official relationships with the ecclesiastical hierarchy
of Religion D, and to preside at appropriate University B functions.

The President of University B is appointed by the Board of Regents, and must be
approved by the Members. The Board of Regents may remove the President at any
time. The bylaws require that the President be a member of Religion D, that the head of
the Council F or his designee will be members of the search committee that
recommends a candidate for President, and that the search committee should give
preference to candidates who are members of Order C. The bylaws require that the
President have the ability to provide leadership for University B as a Religion D and
Order C university. The President is responsible for the administration of University. B’s
affairs, and may delegate his executive or administrative authority to other University B
officials.

University B also maintains an active campus ministry which promotes and supports
University B’s Religion D and Order C identities, and seeks to build a community of faith
at the university. Responsibility for the campus ministry is held by a full-time Rector,
who reports to University B’s President and is part of the senior leadership team at
University B. The Rector also acts as the liaison between University B and the local

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governing body of Religion D. The campus ministry sponsors religious and fellowship
activities, including retreats, freshmen seminars, and liturgical celebrations for the
campus. A community of brothers in Order C live on the campus, and hold various
positions in the faculty and staff of University B.

Plan A, a defined contribution plan, was established by University B effective July 1,
19[illegible] , and operates under the requirements of section 401(a) of the Code. Under the
bylaws of University B, University B’s President may delegate his executive and
administrative authority to other officials of University B, and has the authority to
establish such committees as are necessary for the general function of University B.

Prior to April 16,20 , University B's President had informally delegated executive and
administrative authority over Plan A to two specific university officials, who functioned
as a Retirement Committee. On April 16,20[illegible], University B’s President formally
established a Retirement Committee by a written resolution. The resolution formally
delegated executive and administrative authority over Plan A and other retirement plans
maintained by University B to the Retirement Committee, and re-affirmed the prior
delegation of such authority. The resolution specified that the delegated authority
included the authority to amend Plan A (in some cases only with the approval of the
President) and to execute other documents related to and necessary for the proper
administration of the retirement plans The Retirement Committee’s sole responsibility is
to administer and maintain Plan A and other retirement plans maintained by the
University, and the committee is under the direct supervision of, and reports to,
University B’s President.

University B has not made an election under section 410(d) of the Code for Plan A. All

of the eligible participants in Plan A are employed by University B, and Plan A does not
include employees of any for-profit entities or any unrelated trades of businesses within
the meaning of section 513 of the Code.

In accordance with Revenue Procedure 2011-44, 2011-39 I.R.B. 446, Notice to
Employees with reference to Plan A was provided on August 6, 2012. This notice
explained to participants of Plan A the consequences of church plan status.

Based on the foregoing, you request a ruling that Plan A is a church plan within the
meaning of section 414(e) of the Code.

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 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 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 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 it shares common religious bonds and convictions with that church or
convention or association of churches.

Section 414(e)(4)(A) of the Code provides that if a plan, intended to be a church plan,
fails to meet one or more of the church plan requirements and corrects its failure within
the correction period, then that plan shall be deemed to meet the requirements of this
subsection for the year in which the correction was made and for all prior years.

Section 414(e)(4)(C)(i) of the Code provides, in pertinent part, that the term “correction
period” means the period ending 270 days after the date of mailing by the Secretary of a
notice of default with respect to the plan’s failure to meet one or more of the church plan
requirements.

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.

201333024

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 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 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 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 convention or association of churches.

In this case, University B 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. University B is listed in Directory G. Members of Council F
constitute 80% of the Members of University B, who have the authority to approve and
remove University B’s Board of Regents, and to approve any nominee for President of
University B. Council F leads Province E, which is controlled by the General
Administration of Order C, the world-wide parent to all Order C congregations. The
General Administration of Order C, in turn, is governed by the decisions of
Congregation H, an office within the headquarters of Religion D.

The head of Council F is ex-officio the Chancellor of University B and a member of the
Board of Regents. The Chancellor's duties are to enhance Order C’s presence at
University B and to maintain official relationships with the leadership of Religion D.
University B’s by-laws require that the President of University B be a member of
Religion D, that preference is given to members of Order C in selecting the President of
University B, and that the head of Council F or his designee be a member of the search
committee to nominate the President of University B.

In view of the common religious bonds between University B, Order C, and Religion D,
the inclusion of University B in Directory G, Council F’s control of the Members of
University B, and the status of Council F within Religion D, we conclude that University
B is controlled by or associated with a church or convention or association of churches
within the meaning of section 414(e)(3)(D) of the Code. Accordingly, we conclude that
under section 414(e)(3)(B) of the Code, the employees of University B are deemed to
be employees of a church or a convention or association of churches, because they are
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. .

The Retirement Committee has authority and responsibility to administer Plan A,
pursuant to a written delegation of executive and administrative authority from the

6 201333024

President of University B. The Retirement Committee’s sole responsibilities are the
administration of University B’s retirement plans. The Retirement Committee reports
directly to the President of University B.

Under University B’s by-laws, the President of University B is required to be a member
of Religion D, must have the ability to provide leadership for the University as a Religion
D and Order C University, and must be approved by the Members [illegible]% of whom are
also members of the Council F. The President is elected (and can be removed) by the
Board of Regents, who in turn must be approved by (and can be removed by) the
Members of the University, [illegible]% of whom are also members of the Council F.

Given the President’s control over the Retirement Committee, the President's
substantial common bonds with Religion D and Order C, the control over the President
exercised by Council F through its members’ positions as Members of the University,
and Council F’s position within and control by Religion D, we conclude that the
Retirement Committee is controlled by or associated with a church or association of
churches.

Accordingly, Plan A is maintained by an organization that is associated with a church or
convention or association of churches, and whose principal purpose or function is
_administration of a retirement plan for deemed employees of a church or convention or
association of churches.

The Retirement Committee, which is essential to satisfaction of the church plan
requirements, was formally established on April 16, 20[illegible] As provided under section
414(e)(4)(A) of the Code, where a plan fails to meet one or more of the church plan
requirements and corrects its failure within the correction period, then that plan shall be
deemed to meet the requirements of section 414(e) of the Code for the year in which
the correction is made and for all prior years. The formal establishment of the
Retirement Committee to administer the Plan on April 16, 20[illegible] was within the
correction period for Plan A.

Based on the foregoing facts and representations, we conclude that Plan A is a church
plan under section 414(e) of the Code and has been a church plan within the meaning
_ of section 414(e) of the Code retroactive to the plan’s establishment effective July 1,
1989.

This letter expresses no opinion as to whether Plan A satisfies the requirements
of section 401(a) of the Code.

No opinion is expressed as to the tax treatment of the plan described herein under the
provisions of any other section of either the Code or regulations which may be
applicable thereto.

This letter 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 as precedent.

201333024

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being
sent to your authorized representative. Should you have any concerns regarding this
letter, please contact *** at () *_ Please address all correspondence to

SE:T:EP:RA:T3.

Sincerely yours,

[illegible signature]
Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose

CC:

REKKKEKKKEREKKKEKREREREKEK
EKKERKKERKREERERERERREKEERERER

RKEKKEKKEKKEKREER

KKKKKEKKEKEKKEKEKRREKREREKE

KEKEKKEKERKEREREEEEKRREEEEKEREREK

REKKKKEKRKEKEKEERER