Can a Church Merge its 401(a) and 403(b) Plans?

Q: We are an individual church that sponsors both a 401(a) and a 403(b) plan, but after some research, we feel that the needs of our participants could easily be met by a single 403(b) plan, with far less administrative effort. However, in researching the matter, we stumbled across an Ask the Experts column from 2017, warning us to exercise caution in merging the two plans until further IRS guidance is issued. Does this remain the case in 2024? And, if so, are there alternatives to a plan merger where we can just maintain a 403(b) plan going forward?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: You may be in luck!

In 2022, the IRS issued an updated Listing of Required Modifications and Information Package (known as an “LRM”) for 403(b) plans, which provided guidance for transfers or mergers between 401(a) and 403(b) church plans. The guidance states that a merger of, or transfer between, such plans is “permitted if (A) the [other] Church Plan and this [403(b)] Plan are maintained by the same church or convention or association of churches within the meaning of 414(e) of the Code (including an organization described in §§ 414(e)(3)(A) or (B)(ii)); (B) Each Participant’s or Beneficiary’s total accrued benefit immediately after the transfer or merger is equal to or greater than the Participant’s or Beneficiary’s total accrued benefit immediately before the transfer or merger; and (C) Each Participant’s or Beneficiary’s total accrued benefit is 100% nonforfeitable after the transfer or merger and at all times thereafter.”

Therefore, if all of these criteria are met, then merging or transferring amounts between the two plans is likely permitted. However, we recommend confirming with plan counsel familiar with your plans.

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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