Ask the Experts – Controlled Group Rules for Churches

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.

“Are the rules for determining whether churches are part of the same controlled group of employers the same or different as those that apply to other nonprofit entities? If different, what are the rules?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Historically, the rules regarding controlled groups for churches were not crystal clear. However, the Protecting Americans from Tax Hikes (PATH) Act amended Code section 414(c) to clarify the application of these rules to churches.

Generally, an organization that is otherwise eligible to participate in a church plan will not be aggregated with another such organization and treated as a single employer for a plan year unless (i) one of the organizations provides (directly or indirectly) at least 80% of the operating funds for the other organization during the preceding taxable year, and (ii) there is a degree of common management or supervision between the organizations such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization.

However, there are two exceptions to the general rule:

(a)    Non-qualified church controlled organizations (non-QCCOs or NQCCOs) are aggregated with other NQCCOs, or with organizations not exempt from tax under Code section 501, only if at least 80% of the directors or trustees of such other organization are either representatives of, or directly or indirectly controlled by, such NQCCO. (A NQCCO is generally an organization that (1) offers goods, services or facilities for sale to the general public and (2) normally receives more than 25% of its support from governmental sources or from such sales. Examples include church-related hospitals, colleges, universities and nursing homes.)

(b)    A church or convention or association of churches, or an organization designated by such church or convention or association of churches, may elect to treat such organizations as a single employer for a plan year. Once made, such election shall apply to all succeeding plan years unless properly revoked. In addition, in the case of a church plan, an employer may elect to treat churches (i.e., churches and QCCOs) separately from entities that are not churches (e.g., NQCCOs), without regard to whether such entities maintain separate church plans. Keep in mind that the plaintiffs’ bar has been challenging many of the definitions in this area of church plans for some time.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.