provider asks: “Since the employer
is exempt from ERISA, does this requirement apply to the 414(e) religious
organization? Is the plan considered funded or unfunded? In addition, in
general, do the 457(b) rules applicable to governmental plans or top hat plans
apply – i.e. rollovers, age 50 catch-up, assets protected from the 414(e)
organizations, plan loans?”
Powell, Groom Law Group, answers:
note that many church organizations are not employers eligible to maintain a
457(b) plan. (See Code section
457(e)(13)). Only tax exempt
organizations which are NOT churches or qualified church controlled
organizations under Code section 3121(w)(3)(A) and (B) (usually, church
hospitals, colleges, universities and nursing homes) may maintain 457(b)
such plans are exempt from ERISA as church plans, they need not be top
hat. But if funded, they will run afoul
of the constructive receipt/economic benefit rules and will be immediately
taxable to the participants.
Consequently, most use, at most, a rabbi trust where the assets are
exposed to creditors of the employer.
And they do not get the benefit of the rules applicable only to
governmental plans, so no age 50 catch-up, no loans, and distributions are not
eligible rollover distributions. They
are essentially like other tax exempt organization 457(b) plans, just not
limited to the top hat group.
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.