What is a Church Plan?
A church plan is an employee benefit plan specifically created for the employees (and their beneficiaries) of:
- A church or a convention or association of churches.
- Organizations that are controlled by or associated with a church.
This definition extends to entities such as religious hospitals, schools, charities, and other organizations with a formal association with a church. The key criterion is that the organization must share common religious bonds and convictions with the church.
IRC Section 414(e) – The Church Plan Exemption
Church plans are noteworthy for their exemption from certain provisions of the Employee Retirement Income Security Act of 1974 (ERISA). While ERISA imposes stringent reporting, disclosure, and fiduciary requirements on most employee benefit plans, church plans are generally exempt unless the plan administrator voluntarily elects to be covered under ERISA by filing a formal election.
This exemption reflects a broader policy of limiting governmental oversight in the internal affairs of religious organizations, recognizing their unique relationship with their employees.
IRC Section 414(e) Special Rules and Considerations
IRC Section 414(e) also includes specific rules and provisions:
- Organizations Covered:
- Church plans may include employees of organizations such as parochial schools, church-affiliated charities, and other entities closely associated with a church.
- Non-Clergy Employees:
- Church plans are not limited to clergy members. Plans covering lay employees (non-clergy) also qualify as church plans, provided they meet the necessary criteria.
- Funding Requirements:
- Unlike most ERISA plans, church plans are not required to adhere to ERISA’s minimum funding standards. However, they must still comply with other relevant tax code provisions to maintain their qualified status.
- Plan Administration:
- Church plans often delegate administrative duties to committees or boards closely tied to the church, ensuring the plan’s operations align with religious principles.
Audit and Compliance Considerations
For organizations conducting audits of employee benefit plans, it’s critical to:
- Verify Plan Qualification: Ensure the plan meets the definition of a church plan under IRC Section 414(e).
- Review Affiliation Documentation: Confirm the organization’s control or association with a church through governing documents, organizational structures, or shared religious practices.
- Examine ERISA Exemption: Check if the plan has elected to waive its exemption and adhere to ERISA standards.
IRC Section 414(e) – Why Does This Matter?
Understanding the intricacies of church plans is essential for compliance, particularly when dealing with tax benefits, regulatory requirements, and employee rights. For religious organizations, it’s an opportunity to structure benefits that align with their unique missions while navigating a specialized regulatory landscape.
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