“I thought I could withdraw my retirement plan assets from the plan at my prior church, but the person in charge of that plan said I could not, since I still work for the denomination. Is this true?”
Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Possibly. Prior to 2015, the controlled group rules, which would have governed whether separate churches within a denomination would be part of the same employer for purposes of whether an employment termination had taken place, did not apply to steeple church plans, such as the plan of your local denominational church, though a “good-faith” standard did apply.
However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 established controlled group rules that are applicable to all church plans. All churches, regardless of type (“steeple” church, qualified church-controlled organization (QCCO), or non-QCCO) are aggregated and included in a controlled group if two conditions are satisfied:
One organization provides at least 80% of the operating funds of a second organization during the preceding taxable year of the second organization; and
There is a degree of common management or supervision between the two organizations so that one organization is involved in the day-to-day operations of the other organization.
In addition, the PATH Act allows a church or a convention or association of churches to elect to treat its church-related organizations as a single employer for a plan year. Such election, once made, will apply to all succeeding plan years unless revoked with notice provided to the Secretary of the Treasury in such manner as the Secretary prescribes.
And finally, aside from the controlled group rules, a lot of denominational plans have special rules in the plan document for whether a transfer from one employer in the denomination to another is considered a termination of employment for distribution purposes—which may be more restrictive than what the Internal Revenue Code would allow. That may be to encourage denominational workers to keep their funds in the plan until retirement. And some denominations will have different rules in that regard for clergy versus lay employees such as yourself.
Thus, it is quite possible that your employment at both churches is considered to be part of the same employer for distribution purposes, and if your plan prohibits distributions until termination of employment; this could be the reason the person in charge of the plan stated that a distribution was not permitted in this case. You should carefully review the applicable plan document provision to confirm that a distribution would not be permissible in your situation.
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.
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