(b)lines Ask the Experts – Which Rules for 457(b)s Must Church Plans Follow?

I read with great interest a recent Ask the Experts column in which you discussed the differences between governmental 457(b) plans and those sponsored by private tax-exempt entities.

“I work for a faith-based university whose plan qualifies as a church plan. Should I be following the rules for governmental plans, or those for private tax-exempts?” 

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

Thank you for reading our previous column

Before we respond to your question, the Experts want to remind everyone as we have stated in past columns that some cases have been filed challenging whether non-Qualified Church Controlled Organizations (QCCOs), such as the faith-based university for which you work, can establish church plans at all, and the Supreme Court is expected to rule on that later this year.

Having said this, the Experts addressed a similar question way back in 2009 (Yes, the Ask the Experts column has been around for quite some time now!), and the answer remains valid today. For the most part, non-QCCO church plan under Section 414(e) of the Code, such as those of religious hospitals and universities, must generally follow the rules that apply to private-tax exempt plans. However, there are two significant exceptions, as follows:

1)         Unlike private tax-exempt 457(b) plan, who must limit eligibility to select management and highly compensated employees, church 457(b) plan sponsors may decide who is eligible to participate at their discretion, and may allow all employees to participate if they so choose.

2)         Since church 457(b) plans are exempt from the Employee Retirement Income Security Act (ERISA), they do not need to provide the one time filing to the Department of Labor (DOL) that is required of private tax-exempts

And, as a reminder these rules only apply to non-QCCO church plans; “steeple” churches and QCCOs under Code Section 3121(w) cannot establish 457(b) plans at all.


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 Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.