Religious elder-care facility's pension plan is a church plan

Plain-English summary

A tax-exempt elder-care facility served aged and infirm members of a religious order that was an integral part of a church. Members of the order controlled the facility through governance and reserved powers, its directors belonged to the order, and its dissolution assets generally had to remain within church-related organizations. Its defined benefit plan covered no for-profit or unrelated-business employees and was administered by a committee of church clergy whose sole function was plan administration. The IRS ruled that the facility was associated with the church, its workers were deemed church employees, and the pension plan had qualified as a church plan since inception.

Ruling snapshot

• Question: Did the religious order's elder-care facility maintain a church plan under section 414(e)?
• Outcome: Approved
• Key authorities: IRC § 414(e); Rev. Proc. 2011-44

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201537025 Third Party Communication: None
Release Date: 9/11/2015 Date of Communication: Not Applicable

Index Number: 414.08-00

Person To Contact:

, ID No.

Telephone Number:

Refer Reply To:
CC:TEGE:EB:QP2

PLR-T-103151-15

Date:
June 09, 2015

Legend:

Entity A =
Order B =
Church C =
Directory D =
Council E =

Plan X =

Dear

This letter is in response to your request, submitted on your behalf by your 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 your behalf:

Entity A is an elder care facility for aged and infirm members of Order B, a religious
order of Church C. The members of Order B are Church C clergy and consecrated
brothers, who take the traditional religious vows of poverty, chastity and obedience.
Order B is an integral part of Church C, and the clergy members of Order B perform

PLR-T-103151-15 2

sacerdotal functions within Church C. Entity A is listed in Directory D, the directory for
Church C.

Entity A is a non-profit corporation. Entity A is exempt from federal income tax under
§ 501(a) of the Code as an organization described in § 501(c)(3) pursuant to a group
exemption letter applicable to organizations listed in Directory D.

Entity A’s bylaws specify that the members of Entity A consist of the individuals who
serve as members of Council E of Order B. While the authority to manage Entity A
generally rests with its Board of Directors, Entity A’s members have the power to
approve the election of the Board, and no individual may be elected a Board member
without their approval. Entity A’s bylaws also reserve certain other powers to the
members, including the power to appoint the President/Director of Entity A (who must
be a member of Order B), and to approve a number of significant corporate actions,
including the philosophy according to which Entity A operates, any proposed
amendment to Entity A’s articles of incorporation and/or bylaws, any lease, sale, or
encumbrance of any real estate of Entity A, and any merger, consolidation, dissolution
or other change in the corporate structure of Entity A. The members of Entity A’s Board
of Directors are all members of Order B.

Entity A’s articles of incorporation provide that, upon Entity A’s dissolution, its assets are
to be distributed to Order B or its successor under the canon law of Church C, or, in
certain circumstances, to another tax-exempt organization controlled by, associated
with, or otherwise a part of Church C. The assets may be distributed differently only if
there are no § 501(c)(3) entities controlled by or associated with Church C.

Entity A adopted Plan X, a defined benefit plan qualified under § 401(a), for its
employees effective . While Entity A filed Form 5500s for a number of
years, the plan administrator of Plan X never made an election under § 1.410(d)-1 of the
Federal Income Tax Regulations with respect to Plan X.

None of the employees covered by Plan X are considered employed in connection with
one or more unrelated trades or businesses within the meaning of § 513 of the Code,
and none are employed by for-profit entities.

Plan X is administered by the Pension Committee, which consists of two members of
the clergy of Church C, both of whom are members of Order B. The Pension
Committee’s sole purpose and function is the administration of Plan X. The members of
the Pension Committee are appointed (and can be removed) by the Board of Directors
of Entity A.

In accordance with Revenue Procedure 2011-44, 2011-39 I.R.B. 446, a notice to plan
participants and other interested persons regarding Plan X was provided on
. This notice explained the consequences of church plan status.

PLR-T-103151-15 3

Based on the foregoing, you request 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.

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
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;

PLR-T-103151-15 4

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.

Under the facts you have represented, Entity A is an elder care facility for elderly and
infirm members of Order B, and is exempt from tax under § 501 of the Code. Order B
is an integral part of Church C, and its clergy members perform sacerdotal functions
within Church C. The members of Entity A are those individuals who serve on Council
E of Order B. As the sole members of Entity A, Council E has control over certain
matters involving Entity A’s governance, including approval of the members of Entity A’s
Board of Directors, the power to appoint Entity A’s President/Director, and the
philosophy under which Entity A operates. Entity A’s Board of Directors are all
members of Order B, and the President/Director must be a member of Order B. Entity
A is listed in Directory D, and upon its dissolution the assets of Entity A are to revert to
Order B or, in some circumstances, to one or more organizations controlled by,
associated with, or otherwise a part of Church C.

You represent that none of Entity A’s employees have been 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 associated with Church C 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 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.

The Pension Committee is the administrator of Plan X, and its sole purpose and
function is the administration of Plan X. The Pension Committee consists of two
members of the clergy of Church C, both of whom are members of Order B. The
members of the Pension Committee are appointed (and can be removed) by the Board

PLR-T-103151-15 5

of Directors of Entity A. The members of the Board of Directors of Entity A are all
members of Order B and may serve on the Board only with the approval of the
members of Council E. We thus conclude that the Pension Committee is associated
with Order B and Church C. 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) of the Code, and has been a church plan since its inception
on

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) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

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. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

Sincerely,

Lauson Green

Branch Chief, Qualified Plans
Branch 2 (Employee Benefits)

(Tax Exempt & Government Entities)

cc:

EP Classification
TEGE Headquarters