Addiction treatment center's pension plan qualifies as a church plan

Plain-English summary

A nonprofit residential addiction treatment center serving clergy, religious personnel, and seminarians asked whether its frozen defined benefit plan qualified as a church plan. The center had longstanding religious governance, worship, directory, dissolution, and service ties to a church, and its plan committee administered employee benefits as its sole purpose. The IRS ruled that the center and committee were controlled by or associated with the church, so the plan had been a church plan since the redacted date. The IRS also ruled that voluntarily following ERISA standards, filing Form 5500, and paying pension-insurance premiums did not create an irrevocable Section 410(d) election because no required affirmative election statement had been filed.

Ruling snapshot

• Question: Was the defined benefit plan a church plan, and did voluntary ERISA compliance create a Section 410(d) election?
• Outcome: Approved as a church plan; no Section 410(d) election occurred.
• Key authorities: IRC §§ 401(a), 410(d), 414(e), 501, 513, 6058(a); Treas. Reg. § 1.410(d)-1; Rev. Proc. 2011-44

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201826009 Third Party Communication: None
Release Date: 6/29/2018 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-133791-17
Date:
April 2, 2018

Legend:

Entity A = -------------------------

Church Official B = ----------------------------------------------------------------------------------

Church Official C = ------------------------------------------------------------------------
----------------------------------------------------------------------------------
Church D = --------------------------------------

Church Directory E = ----------------------------------------

Committee F = ----------------------------------------------

Plan X = ----------------------------------------------------------------------------------
---------

Year 1 = -------

Date 2 = ---------------------------

Date 3 = -----------------------

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

This letter is in response to Entity A's request, submitted on its behalf by its 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 Entity A's behalf:

Entity A is a residential addiction treatment center that has served Church D for more
than 60 years. Entity A provides alcoholism and addiction treatment solely to clergy,
men and women religious, and seminarians. Entity A is a § 501(c)(3) non-profit
organization, and is listed in Church Directory E.

Entity A's Articles of Incorporation provide that Entity A was formed in part to perform
the ----------------------------------and to encourage their performance for and on behalf of
alcoholics and addicts who are in need. The ----------------------------------are a basic
foundation of Church D.

Historically, all members of the Board of Trustees of Entity A have been members of
Church D (although such membership is not required by the bylaws). Currently, at least
five of the members of the Board of Trustees are -----------------------------------of Church
D. Under Entity A's bylaws, a minimum of two Board of Trustee seats must be held by
alumni of Entity A. Meetings of the Board begin and end with a Church D prayer. Upon
Entity A's dissolution, Entity A's assets shall be distributed to Church Official B and
Church Official C and their successors for the use and benefit of Church D.

The President of Entity A is selected by the Board of Trustees, and also serves as the
Chief Executive Officer of Entity A. The executive leadership of Entity A appointed by
the Board of Trustees historically has consisted of members of Church D, and often
Entity A's spiritual director or pastor will conduct a traditional ------------------------------------
------------formally recognizing the executive leader as a ------------- of Church D.

Entity A's bylaws also provide for the appointment of advisory boards whose purpose is
to assist management in improving Entity A's services to Church D. Entity A has two
such advisory boards. All 23 board members of the advisory boards are members of
Church D and 19 of the 23 board members are -----------------------------------of Church D.

Each of Entity A's campuses includes a Church D chapel. The majority, if not all, of the
governance, fundraising and alumni activities of Entity A are accompanied by a
celebration of a Church D religious service, and a daily Church D religious service is
held on Entity A's campus for the benefit of Entity A's staff and clients. When clients of
Entity A are discharged from treatment, a Church D religious service is held in the
client's honor.

Entity A established Plan X, a defined benefit plan qualified under § 401(a), effective in
Year 1, in order to provide retirement benefits to eligible employees of Entity A. Plan X
was frozen effective Date 2.

Entity A has the authority to designate the plan administrator of Plan X, and has
established Committee F to administer the retirement benefits of employees of Entity A,
including Plan X. The members of Committee F are appointed by the Board of
Trustees. Committee F is comprised of three members: Entity A's Chief Executive
Officer (CEO), Chief Financial Officer (CFO), and Human Resources Manager. The
CEO and CFO are members of Church D, and members of Committee F carry out their
duties in accordance with Entity A's mission.

None of the eligible participants in Plan X are employed in connection with a for-profit
entity or one or more unrelated trades or businesses of Entity A within the meaning of
§ 513.

Neither Entity A nor Committee F has ever filed an affirmative and irrevocable election
attached to a Form 5500 (Annual Return/Report of Employee Benefit Plan) or a Form
5300 (Application for Determination for Employee Benefit Plan) under § 410(d) with
regard to Plan X. However, Entity A has in the past voluntarily operated Plan X in
compliance with standards of the Employee Retirement Income Security Act of 1974
(ERISA), as amended, including filing Form 5500 for the plan, paying premiums to the
Pension Benefit Guaranty Corporation, and updating and amending the plan on a
continuous basis.

A notice to interested persons regarding Plan X was provided in accordance with
Revenue Procedure 2011-44, 2011-39 I.R.B. 446. This notice explained the
consequences of church plan status.

Based on the foregoing, Entity A requests the following rulings:

a. That Plan X is and has been a church plan retroactive to Date 3 under the
provisions of § 414(e) of the Code.

b. That Entity A's administration and operation of Plan X, through Committee F, as
if subject to Title I of ERISA does not constitute an irrevocable election under
§ 410(d).

With respect to your first ruling request, § 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.
See Advocate Health Care Network v. Stapleton, 137 S. Ct. 1652 (2017), holding that a
plan that is maintained by an organization described in § 414(e)(3)(A) may be a church
plan under § 414(e) even if it was not established by 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; 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.

With respect to your ruling request, under the facts you have represented, Entity A is a
residential addiction treatment center that serves clergy, men and women religious, and
seminarians of Church D. Entity A is listed in Church Directory E, and is a § 501(c)(3)
non-profit organization. Entity A's bylaws provide that one of the purposes of Entity A is
to carry out certain tenets of Church D. Historically all members of the Board of
Trustees of Entity A have been members of Church D. Upon Entity A's dissolution,
Entity A's assets are required to be distributed to Church Official B and Church Official
C for the use and benefit of Church D. Entity A's bylaws provide for the appointment of
advisory boards whose purpose is to assist management in improving Entity A's
services to Church D. Each of Entity A's campuses includes a Church D Chapel. The
majority, if not all, of the governance, fundraising and alumni activities of Entity A are
accompanied by a Church D religious service, and a daily Church D religious service is
held on Entity A's campus.

You represent that none of the eligible participants in Plan X are employed in
connection with a for-profit entity or one or more unrelated trades or businesses of
Entity A within the meaning of § 513.

Based on these facts, we conclude that Entity A is controlled by or associated with
Church D 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.

Committee F is the plan administrator of Plan X, and its sole purpose is to administer
Entity A's employee benefit plans. The members of Committee F are appointed by the
Board of Trustees of Entity A, and include Entity A's Chief Executive Officer, Chief
Financial Officer, and Human Resources Manager. The Chief Executive Officer of
Entity A is selected by the Board of Trustees and has historically been a member of
Church D. The spiritual director or pastor of Entity A will often conduct a traditional ------
-------------------------------------------- formally recognizing the CEO as a ------------- of
Church D.

We thus conclude that Committee F is controlled by or associated with Church D.
Accordingly, Plan X is maintained by an organization that is controlled by or 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), and has been a church plan since Date 3.

With respect to your second ruling request, § 410(d) allows a church or a convention or
association of churches which maintains any church plan to make an irrevocable
election that certain provisions of the Code and Title I of ERISA shall apply to the plan
as if it were not a church plan.

Section 1.410(d)-1(c)(3) of the Regulations provides that the plan administrator of the
church plan may make the election by attaching an affirmative statement to either (i) the
plan's annual return required under § 6058(a) (i.e., Form 5500) with respect to the plan
which is filed for the first plan year for which the election is effective or (ii) a written
request for a determination letter relating to the qualification of the plan (e.g., Form
5300). Section 1.410(d)-1 does not provide for an alternative form of election.
Accordingly, we conclude that the administration and operation of Plan X, through
Committee F, as if it were subject to Title I of ERISA, does not constitute an election
under § 410(d).

This letter expresses no opinion as to whether the Plan X satisfies the requirements of
§ 401(a).

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

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, as specified in Rev. Proc. 2018-1, 2018-1 I.R.B. 1,
§ 7.01(16)(b). This office has not verified any of the material submitted in support of the
request for ruling, and such material is subject to verification on examination. The
Associate office will revoke or modify a letter ruling and apply the revocation
retroactively if there has been a misstatement or omission of controlling facts; the facts
at the time of the transaction are materially different from the controlling facts on which
the ruling was based; or, in the case of a transaction involving a continuing action or
series of actions, the controlling facts change during the course of the transaction. See
Rev. Proc. 2018-1, § 11.05.

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

                                   Sincerely,



                                   Lauson C. Green
                                   Branch Chief, Qualified Plans Branch 2
                                   Office of Associate Chief Counsel
                                   (Tax Exempt and Government Entities-)