“I discovered a church that has been filing a Form 5500 for its retirement plan even though it is not required to do so (it intends to be a non-electing plan). Will the IRS categorize the plan as an ‘electing church plan’ because of the Form 5500 filings?”
ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with an advisor in California is representative of a common question for plans maintained by churches.
Highlights of the Discussion
Fortunately, the IRS has taken the position that a church plan cannot be inadvertently categorized as an “electing church plan” [i.e., one that elects to have certain rules under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (IRC) apply as if the plan were not a church plan]. The plan administrator must make a formal election under Treasury Regulation 1.410(d)-1(c) in order to be treated as an electing church plan. The election is irrevocable.
There are two methods of election and both involve the plan administrator executing a written statement that indicates 1) the election is made under IRC Sec. 410(d) and 2) the first plan year for which it is effective. A plan administrator could either attach the written statement to the
- Form 5500 it files for the first plan year for which the election is to be effective
- Determination letter application for a qualified IRC Sec. 401(a) plan.
If an election is made with a written request for a determination letter, the election may be conditioned upon issuance of a favorable determination letter and will become irrevocable upon issuance of such letter.
If the church plan is a qualified defined benefit plan, the plan administrator must also notify the Pension Benefit Guaranty Corporation (PBGC) of its election for PBGC insurance to apply [ERISA § 4021(b)(3)].
A bona fide church plan cannot accidently become an electing church plan, subject to ERISA and the IRC as any other qualified retirement plan would be. The plan administrator must execute a written statement that is either attached to a Form 5500 filing or determination letter application.