Determination 1339004: School's retirement and welfare plans qualified as church plans

Plain-English summary

The IRS ruled that a school's tax-sheltered annuity plan and health and welfare plan were church plans under section 414(e). The school was affiliated with a church through its founding congregation, religious governance, membership structure, and inclusion in the church directory. The IRS also found that the committee administering both plans was controlled by and shared common religious bonds with the church through the school's officers. The ruling did not address whether the annuity plan independently qualified under section 403(b) or whether the welfare plan satisfied section 419.

Ruling snapshot

• Question: Were the school's retirement and health and welfare plans church plans under IRC § 414(e)?
• Outcome: Approved
• Key authorities: IRC §§ 403(b), 410(d), 414(e), 419, 501, and 6110(k)(3); Rev. Proc. 2011-44

Full text (IRS public release)

201339004

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

TAX EXEMPT AND JUL 0 3 2013
GOVERNMENT ENTITIES
DIVISION

U.I.L 414.08-00

Attn:

Legend:

School A:

Congregation S:

State B:

Church M:

Authority A:
Authority B:

Authority C:
Diocese H:

Office A:
Province P:

City R:

Plan X:

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Plan Y:
Dear

This is in response to your letters dated May 7, 2007, January 6, 2010, May 7, 2012,
December 12, 2012, and May 10, 2013, submitted on your behalf by your authorized
representative, in which you request a ruling that Plans X and Y are church plans
described in section 414(e) of the Internal Revenue Code of 1986, as amended (the
“Code”).

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

School A is a not-for-profit school founded by Congregation S in 19 School A was
originally incorporated on December 1,19. and is maintained as a domestic nonprofit
corporation under the laws of State B. School A was established as a Church M school
for girls in kindergarten through grade 12. School A is committed to promoting a
Christian environment and fostering a learning experience that provides students with
an intellectual, physical, aesthetic, spiritual, and moral education in such Christian
environment. School A’s goal is to provide students with a spiritual foundation for the
development of Christian values. This mission is affirmed in the By-Laws of School A,
which charges School A's officers with the obligation to ensure that School A maintains
a Church M identity and that School A’s officers and students live out the charism of
Congregation S. School A is listed in The Official Church M Directory and is an
organization described in section 501(c)(3) of the Code and exempt from tax under
section 501(a) of the Code.

School A is led by the Head of School A, who oversees School A’s administration as
well as the educational and religious programs at School A. The Head of School A is
selected by and reports to the 19-person Board of Directors (the “Board of Directors”),
which is comprised of persons within Congregation S. The Board of Directors is
ultimately controlled by and under the authority of the Members of School A (the
“Members”). The Members approve the nomination of the Head of School A. Also, 4 of
the 19 directors are selected and appointed by the Members. The other 15 directors
are nominated and elected by the Board of Directors, subject to the Members’ approval
of the nominees. The Board of Directors oversees School A’s finances and non-
religious, non-academic operations, and reports to the Members.

The Members consist of four sisters belonging to Province P, and one priest of
Congregation S. The four sisters hold all the Member offices with Authority A, who
resides in State B, being the President of the Members. Authority A reports to and is
under the direct authority of Authority B which is headquartered in City R. Authority B is
led by Authority C, who retains certain powers as defined by Canon Law. School A is
required to abide by Canon Law, and the rules and regulations of Church M, meaning
that all of School A’s teachings must be in line with Church M doctrine. The Bishop of

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Diocese H, a part of the Church M in State B, controls the teaching of religion and
matters of faith at School A through Office A.

School A has established and maintains two benefit plans for the exclusive benefit of
eligible employees of School A. Plan X, effective January 1,19 is a tax-sheltered
annuity arrangement that permits both employee elective deferrals and employer
matching contributions and is intended to meet the requirements of section 403(b) of the
Code. Plan Y, effective January 1,19 is a health and welfare arrangement. School
A provides fully insured medical, dental, group long term disability, and group life and
accidental death and dismemberment coverage to all eligible employees under Plan Y.

An administrative committee (the “Committee”) for Plans X and Y was informally
established and has been formally established and reaffirmed on December 11, 20
The Committee is comprised of the Head of School A, the Business Manager of School
A, and the Human Resources Manager of School A. The principal purpose of the
Committee is to administer Plans X and Y. The Committee is appointed by and reports
to School A’s Officers and Board of Directors.

The School has never made a Code Section 410(d) election on behalf of either of the
Plans and no statement to this effect has ever been filed with the IRS.

In accordance with Revenue Procedure 2011-44, 2011-39 I.R.B. 446, Notice to

Employees with reference to Plan X was provided on April 26, 20 This notice
explained to participants of Plan X the consequences of church plan status. Plan Y is a
health and welfare arrangement and is not subject to Revenue Procedure 2011-44.

Based on your submission and the above facts and representations, you request a
ruling that Plan X and Plan Y are church plans under 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 by 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 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,

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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.

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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 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; 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 view of the common religious bonds between School A and Church M, the inclusion
of School A in The Official Church M Directory, and the indirect control of School A by
Church M through Congregation S and Province P, we conclude that School A is
associated with a church or convention or association of churches within the meaning of

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section 414(e)(3)(D) of the Code, that the employees of School A meet the definition of
employee under section 414(e)(3)(B) of the Code, and that they 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.

Page 5

The administrative control of Plan X and Plan Y is vested in the Committee. The
Committee is controlled by and shares common religious bonds with Church M through
its control by School A’s Officers. The sole purpose of the Committee is to have
exclusive authority to control and manage the operation and administration of Plan X
and Plan Y. Thus, the administration of Plan X and Plan Y satisfies the requirements
regarding church plan administration under section 414(e)(3)(A) of the Code.

Accordingly, in regard to your ruling request, we conclude that Plan X and Plan Y are
church plans as defined in section 414(e) of the Code.

This letter expresses no opinion as to whether Plan X requirements for qualification
under section 403(b) of the Code or Plan Y satisfies the requirements of section 419 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.

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

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being
sent to your authorized representative.

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If you have any questions regarding this letter, please contact
Please address all correspondence to SE:T:EP:RA:T3.

Sincerely yours,

Laura B. Warshawsky, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted Copy of Ruling Letter
Notice of Intention to Disclose

cc: