Church-affiliated college retirement plan qualified as a church plan

Plain-English summary

A private tax-exempt college asked whether its defined contribution retirement plan qualified as a church plan under section 414(e). The college was an official institution of a church, shared its religious doctrine, had governance requirements linking its board and president to church congregations, and would transfer assets to the church or its designee upon dissolution. A board subcommittee composed of church members administered the plan, and the plan covered only college employees who were not employed in unrelated businesses or for-profit entities. The IRS concluded that the college and the administrative subcommittee were associated with the church, the covered workers were deemed church employees, and the plan was a church plan.

Ruling snapshot

• Question: Whether the college’s section 403(b) retirement program was a church plan under section 414(e)
• Outcome: Approved
• Key authorities: I.R.C. § 414(e); Rev. Proc. 2011-44

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201543012                                              Third Party Communication: None
Release Date: 10/23/2015                                       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-116437-15
                                                               Date:
                                                               July 27, 2015




LEGEND:

College                    =    -------------------------
Plan X                     =    --------------------------------------------------------
Church                     =    -------------------------------------------------------------
State                      =    -------
Year A                     =    -------
Religious Tradition        =    --------------------------
Directory M                =    --------------------------------------------------------------------
Number A                   =    -----------
Number B                   =    --
Number C                   =    ----
Number D                   =    ----
Number E                   =    --
Number F                   =    ---
Number G                   =    --
Number H                   =    ----
Number I                   =    ---
Date A                     =    -----------------
Date B                     =    ------------------------




Dear ----------------------:

This responds to your letter dated February 20, 2015, submitted on your behalf by your
authorized representatives, in which you request a ruling that Plan X is a church plan
within the meaning of section 414(e) of the Internal Revenue Code. The following facts
and representations have been submitted under penalties of perjury:
PLR-116437-15                                 2


College is a private not-for-profit college of the Church. College was formed under the
not-for-profit corporation laws of State and is exempt from tax under section 501(c)(3).

College was founded in Year A. College is an official institution of higher education of
Church. College is listed in Directory M, and is also listed as a Church college on its
website and on Church’s website. College is dedicated to challenging and nurturing
students for lives of leadership and service as a spirited expression of their faith and
learning.

College embraces certain teachings and writings that are central to Religious Tradition
which have been formalized by Church. College has accepted these teachings and
writings as its official doctrine and represents that it shares common religious bonds and
convictions with Church.

Church has adopted a constitution and bylaws in which its colleges and universities are
described. Church bylaw Number A states:

       The relationship of this church to its colleges and universities shall be
       guided by policies fostering educational institutions dedicated to the
       Religious Tradition wherein such institutions are an essential part of God’s
       mission in the world; faithful to the will of God as institutions providing
       quality instruction in religion and a lively ministry of worship, outreach, and
       service; diligent in their preparation of leaders committed to truth,
       excellence, and ethical values; and pledged to the well-being of students
       in the development of mind, body, and spirit.

Article Number B of College’s restated articles of incorporation includes the following
statement of College’s purpose and affiliation with Church:

       The Corporation shall operate a coeducational liberal arts college of Church or its
       successor.

Sections Number C and Number D of the bylaws of College include the following
statements of the College’s religious mission and vocation:

       College is dedicated to challenging and nurturing students for lives of
       leadership and service as a spirited expression of their faith and learning.

       College helps students discover and claim their callings—connecting their
       learning with faith and values, their understanding of themselves and their
       gifts, their perspective on life and the future, and the opportunities for
       participating in church, community, and the larger society in purposeful
       and meaningful ways.
PLR-116437-15                                 3


Article Number G of College’s articles of incorporation provides that the members of
College include the members of the Church assembly, the officers of Church, and the
members of the board of regents of College (“Board”). The regular meetings of the
members of College are held at the same place as the church wide assemblies of
Church at a time designated by the bishop of Church. The presiding officer of the
church wide assembly of Church presides at the meeting of the members of College.

Section Number E of the bylaws of College states that the corporation is managed by
Board, which is composed of a minimum of 15 persons and a maximum of 35 persons.
Article Number F of the articles of incorporation of College requires at least 60% of the
regents to be members of a Church congregation. In nomination of persons to be
considered for membership on Board, Board consults with Church bishops in the
synods of Regions Number B and Number G of Church.

Section Number H of the bylaws of College provides that Board has the power and
authority to appoint or remove the President of College, who in turn must be a member
of a Church congregation or another church body that has a relationship of full
communion with Church. The President of College shall be responsible to Board, shall
serve as the executive head of College and shall have the administrative responsibility
for all the affairs of College. Article Number I of the articles of College dictates that in
the event of College’s dissolution, its assets shall revert to Church or to a tax-exempt
organization designated by Church.

College has maintained and sponsored Plan X, a defined contribution retirement plan
established as a 403(b) tax-deferred annuity program, since Date B. The Vice President
for Finance & Administration and the Director of Human Resources & Payroll are
primarily responsible for the day-to-day ministerial administration of Plan X. They report
to the retirement plan subcommittee of Board, which is responsible for the overall
administration of Plan X. The subcommittee is comprised of five members of Board,
including the President of College and Board Chair. The Vice President for Finance &
Administration and the Director of Human Resources & Payroll staff the subcommittee.
All of the members of the subcommittee are members of Church congregations.

Plan X covers active and former employees of College. No other persons are eligible to
participate in Plan X. None of the eligible employees are employed in connection with
one or more unrelated trades or businesses within the meaning of section 513, and
none of the eligible employees that participate in Plan X are employees of for-profit
entities.

In accordance with Revenue Procedure 2011-44, Notice to Interested Persons with
reference to Plan X was provided on Date B.
PLR-116437-15                                 4

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 section 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 section 513); or if less than substantially all of the individuals included in the
plan are individuals described in section 414(e)(1) or section 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 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 section 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 section 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 section 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 section 414(e) 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.
PLR-116437-15                                5

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) by virtue of the organization’s control by or association 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; 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). To be described in section 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 convention or association of churches.

In this case, College, a State not-for-profit corporation, is an organization described in
section 501(c)(3) that is tax exempt under section 501(a). College is listed in Directory
M, the directory for Church. The management and direction of the business and affairs
of College is vested in Board, at least 60% of whose members must be members of a
Church congregation and whose nomination to Board is done in consultation with
Church officials. As described above, various sections of the articles of incorporation
and bylaws of College demonstrate that College shares common religious bonds and
convictions and is associated with Church.

In light of the relationship between Church and College, we conclude that College is
associated with a church or a convention or association of churches within the meaning
of section 414(e)(3)(D). In addition, the employees of College who are eligible to
participate in Plan X meet the definition of employee under section 414(e)(3)(B), and
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 and which is associated with a church or a convention or association
of churches.

Plan X is administered by the retirement plan subcommittee. The principal responsibility
of the subcommittee is to administer Plan X. The members of the subcommittee include
the President of College, who must be a member of a Church congregation or a church
body with a relationship of full communion with Church, and members of Board, who are
nominated in consultation with Church officials. All of the members of the subcommittee
are members of Church congregations. Based on these facts, we find that the
subcommittee shares common religious bonds and convictions with Church and is
associated with Church. Because the subcommittee is associated with Church, we
conclude that the subcommittee is an organization described in section 414(e)(3)(A).

Based on the foregoing facts and representations, we conclude that Plan X is a church
plan within the meaning of section 414(e).
PLR-116437-15                                  6

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.

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

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


                                        Sincerely,
                                        /S/

                                        Laura B. Warshawsky
                                        Senior Tax Law Specialist
                                        Qualified Plans Branch 2
                                        (Tax Exempt & Government Entities)