Pension plan for church-associated nonprofit qualifies as a church plan

Plain-English summary

A religiously affiliated nonprofit serving people with developmental disabilities asked whether its defined benefit pension plan qualified as a church plan under section 414(e). The nonprofit was tax exempt, formally certified as related to a church, governed in part by church members, and able to call church officials as employees. Its plan covered only the nonprofit's employees, none of whom worked for for-profit entities or unrelated trades or businesses. A committee whose sole purpose was administering and funding the plan reported directly to the nonprofit's board. The IRS concluded that the nonprofit and committee were controlled by or associated with the church and ruled that the pension plan was a church plan.

Ruling snapshot

• Question: Did the nonprofit's defined benefit pension plan qualify as a church plan under section 414(e)?
• Outcome: Approved.
• Key authorities: IRC §§ 401, 414, 501, and 513; Rev. Proc. 2011-44; Advocate Health Care Network v. Stapleton.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202001008 Third Party Communication: None
Release Date: 1/3/2020 Date of Communication: Not Applicable
Index Number: 414.08-00
Person To Contact:
----------------------------- -----------------, ID No. -----------------
------------------------------------------------------------ Telephone Number:
--------- ---------------------
-------------------------------------------------- Refer Reply To:
--------------------------- CC:TEGE:EB:QP1
-------------------------------------------- PLR-108981-19
Date:
October 03, 2019

Legend

Entity A = --------------------------------------------------
Denomination A = -------------
Religion = ---------------
State A = --------------
Church = ----------------------------------------------
Committee P = --------------------------------------------------------
Plan X = ---------------------------------------------------------------------
Date 1 = ------------------
Date 2 = -----------------
Date 3 = -------
Date 4 = --------------------------
Program = --------------------------------------------

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

This letter responds to the letter dated April 12, 2019, as supplemented by
correspondence dated August 2, 2019, and August 26, 2019, submitted on your behalf
by your authorized representative, regarding the status of Plan X as a church plan
within the meaning of section 414(e) of the Internal Revenue Code.

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

Entity A is an organization with the purpose of caring for developmentally disabled
children and adults in accordance with Denomination A doctrines. Since its founding on
Date 1, Entity A has provided an array of services that include housing, day programs,
PLR-108981-19 2

employment support, faith support, camps and educational support. In addition to the
primary goal of education in Denomination A doctrines, the ultimate aim is to develop
disabled individuals’ potential, to increase their knowledge and skills, and to enhance
their ability to deal with their environment.

Entity A is a nonprofit, nonstock State A corporation created on Date 1. It has been
recognized as a tax-exempt organization under section 501(c)(3) since Date 2. Entity A
is a member corporation under State A law, with members having specified rights
including the right to vote in annual director elections. Membership in Entity A is limited
to communicant members of a congregation affiliated with Church and certain other
Denomination A churches. Certain other individuals or Denomination A organizations
which are interested in the work of Entity A are allowed to attend meetings for Entity A,
but do not have a right to vote.

Entity A has a board of directors that ranges in number from 9 to 20. At least 40
percent of the sitting directors must be members of Church. The remaining directors
must be Entity A members from other Denomination A branches or other denominations
of Religion.

Church has a formal program (Program) for related organizations that operate ministry
programs that are independent of Church but foster the mission and ministry of Church.
Under Program, organizations must apply to Church to be certified as related
organizations. To become certified, organizations must show that they identify with the
mission and ministry of Church (but remain independent of Church’s constitutional and
legal structure); respect and not act contrary to the doctrine and practice of Church as
set forth in Church’s constitution and applicable resolutions; foster the mission and
ministry of Church and engage in program activity that is harmonious with the programs
of Church; provide for appropriate Church representation on its governing boards; and
sign an agreement by which the organization agrees to comply with all applicable
bylaws and policies of Church. Once an organization becomes a related organization
under Program, it can issue calls for ordained and commissioned ministers on the
Church’s roster, use the Church logo, apply for certain loans, seek grants, and
participate in Church’s health plan and Church’s group purchasing agreement. Entity A
has been certified as a related organization under Program since Date 3.

In addition to being certified under Program, Entity A is able to call certain religious
officials from Church as employees. Entity A currently has 8 Church officials that were
called to their roles in Entity A, including Entity A’s Vice President of Religious Life and
Church Relations.

Entity A adopted Plan X, a defined benefit pension plan, effective as of Date 4. Entity A
represents that Plan X is a qualified plan under section 401(a). Entity A has not made
an election for Plan X under section 410(d).
PLR-108981-19 3

All of the eligible participants in Plan X are employed by Entity A. None of the eligible
participants in Plan X include employees of for-profit entities, and none of the eligible
participants in Plan X are employed in connection with one or more unrelated trades or
businesses within the meaning of section 513.

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.

The bylaws of Entity A name Committee P as the administrator of Plan X. The bylaws
further state that Committee P must consist of Entity A’s Treasurer, Chairman and CEO,
and one to three directors appointed at the discretion of the Chairman of the Board.
The bylaws state that the sole purpose of Committee P is to determine and administer
the benefits of Plan X, manage the funds available for investment in a prudent manner,
and take such steps as are necessary to maintain Plan X as a qualified plan.
Committee P meets regularly and responds directly to Entity A’s Board of Directors
during Directors’ meetings.

Entity A is requesting a private letter ruling that Plan X is a church plan under section
414(e).

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 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 section 414(e)(3)(A) may be a
church plan under section 414(e) even if it was not established by a church or a
convention or association of churches.
PLR-108981-19 4

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 IRB 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.

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) 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 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.

With respect to your ruling request, Entity A is a non-profit corporation that is exempt
from federal income tax under section 501(a) as an organization described in section
501(c)(3). The primary purpose of Entity A is to provide an array of services that
include housing, day programs, employment support, faith support, camps and
education in the Denomination A doctrines. Entity A has been certified as a related
organization under Program by Church, a Denomination A church, since Date 3, which
PLR-108981-19 5

allows it to issue calls for ordained and commissioned ministers on the Church’s roster,
use the Church logo, apply for certain loans, seek grants, and participate in Church’s
health plan and Church’s group purchasing agreement. Entity A regularly calls certain
members of Church to support certain roles in its administration. Entity A is governed
by a Board of Directors; at least 40 percent of the Board has to consist of members of
Church.

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 section 513.

Based on these facts, we conclude that Entity A is associated with a church or
convention or association of churches for purposes of section 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 section 501 and which is controlled by or associated
with a church or a convention or association of churches.

You have represented that Committee P is the plan administrator of Plan X, and its sole
purpose is to administer the benefits of Plan X, manage the funds available for
investment in a prudent manner, and take such steps as are necessary to maintain Plan
X as a qualified plan. Committee P consists of the Treasurer, President and CEO of
Entity A, as well as one to three directors appointed by the Chairman of the Board of
Entity A. Committee P responds directly to Entity A’s Board of Directors during
Directors’ meetings.

We thus conclude that Committee P is controlled by or associated with Church.
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 within the meaning of section 414(e).

This letter expresses no opinion as to whether Plan X satisfies the requirements of
section 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.
PLR-108981-19 6

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. 2019-1, 2019-1 I.R.B. 1,
§ 7.01(16)(b). This office has not verified any of the material submitted in support of the
request for a 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. 2019-1, § 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,



                                       Laura B. Warshawsky
                                       Chief, Qualified Plans Branch 1
                                       Office of Associate Chief Counsel
                                       (Employee Benefits, Exempt Organizations,
                                       and Employment Taxes)

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