Senate bill would clarify tax rules applicable to church plans

Bipartisan legislation introduced in the Senate on May 14, 2013 would modify the tax rules applicable to church plans. S. 952 (The Church Plan Clarification Bill of 2013), introduced by Senators Ben Cardin (D-MD) and Rob Portman (R-OH), would clarify a number of rules impacting church plans, including those governing controlled groups, grandfathered defined benefit plans, automatic enrollment, transfers between 403(b) plans and qualified church plans, and “81-100 trusts.”

Some recent legislative and regulatory changes have resulted in uncertainty and/or compliance issues for church pension plans, Cardin noted. Accordingly, the bill contains a number of corrections and clarifications to the tax rules governing such plans.

Controlled group rules

The bill modifies the “controlled group rules” of Code Sec. 414(c) to ensure that multiple church-affiliated entities – which may be related theologically, but have little or no relation to one another in terms of day-to-day operation – are not inappropriately treated as a single employer.

Grandfathered DB plans

Rules subjecting 403(b) church defined benefit plans established before 1982 (“grandfathered DB plans”) to both defined benefit and defined contribution annual benefit limits under Code Sec. 415 have resulted in clergy who are lower-paid and closest to retirement being harmed, according to Cardin. The bill clarifies these rules to ensure that only the defined benefit limitations apply to these plans.

Auto enrollment

The bill contains provisions to allow churches to include automatic enrollment features in their retirement plans just as non-church corporate plans are allowed to do without the uncertainty arising under the laws of certain states.

Transfers between 403(b)s and qualified church plans

The bill would amend Code Sec. 414 to allow transfers and mergers between a 403(b) church retirement plan and a Code Sec. 401(a) qualified church retirement plan. The provision is designed to decrease complexity and administrative costs for church employers, as well as confusion for employees.

Collective investment trusts

Church benefits boards are legally allowed to commingle plan and non-plan church-related assets for investment purposes to allow churches the benefit of the board’s greater resources, investment skills, and economies of scale, Cardin noted. The bill provides that collective investment trusts (as described in Rev. Rul. 81-100 as modified by Rev. Rul. 2011-1) can accept such funds.

Source: S. 952, The Church Plan Clarification Bill of 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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