The IRS has said in a recently issued private letter ruling (PLR) that a retirement plan run offered by a charity that is affiliated with a church is a church plan.
In PLR 202001008, which the IRS issued on Oct. 3, 2019 but did not release until Jan. 3, 2020, the IRS addresses whether the retirement plan offered by an entity that cares for developmentally disabled children and adults in accordance with the doctrines of a church is a church plan.
The entity is a nonprofit, nonstock corporation established under state law and recognized as a 501(c)(3) tax-exempt organization. It has been certified as an organization related to the church; it is able to call certain religious officials from the church as employees, and it has done so.
The entity provides an array of services that include housing, day programs, employment support, faith support, camps and educational support. Its primary goals are to educate in the church’s doctrines and to develop disabled individuals’ potential, increase their knowledge and skills, and enhance their ability to deal with their environment.
The entity adopted a defined benefit plan; it represents that its plan is qualified under Internal Revenue Code Section 401(a) and that it has not made an election for the plan under Code Section 410(d). All of the eligible participants in the plan are entity employees; none of them are employees of for-profit entities, and none are employed in connection with one or more unrelated trades or businesses within the meaning of Code Section 513.
The entity is requesting a private letter ruling that its plan is a church plan under Code Section 414(e).
The Ruling
The IRS concluded that based on the facts, the entity is associated with a church or convention or association of churches for purposes of Code Section 414(e). It further concluded that the entity’s employees are employees of a church or a convention or association of churches by virtue of being employees of an organization which is tax-exempt under Code Section 501 and which is controlled by or associated with a church or a convention or association of churches. The IRS also concluded that committee that administers the entity’s pension plan is controlled by, or associated with, the church.
Accordingly, the IRS said, the plan 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 the plan to provide retirement benefits for the deemed employees of a church or a convention or association of churches. Based on the facts and representations in this instance, the IRS concluded that the plan is a church plan under Code Section 414(e).
A Caveat
IRS PLRs are not formal guidance that is broadly applicable, nor are they to be used as precedent. The IRS issues PLRs in response to particular questions from an individual party and are applicable only to the situation that party poses. However, while they are not applicable as guidance, they do provide an indication regarding what how the IRS views particular scenarios, matters and situations.
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