The first term actually consists of TWO definitions: a) A church as defined in section 3121(w)(3)(A); or b) a qualified church-controlled organization, better known as a QCCO, as defined in section 3121(w)(3)(B). Section 3121(w)(3)(A) defines a church as essentially the house of worship itself (which is why this definition is known as the “steeple” church definition; the IRS has listed some of the criteria for whether something is a “church” in its Internal Revenue Manual), a convention or association of churches (e.g. the denomination, though it can be a looser association), or an elementary or secondary school (but, notably, NOT a college or university) that is controlled, operated, or principally supported by a church or by a convention or association of churches.
A church-related organization can be qualified church-controlled organization, or “QCCO”, is any 501(c)(3) tax-exempt charitable organization that is controlled by a church, with the following notable exceptions:
- an organization that offers goods, services, or facilities for sale, other than on an incidental basis, to the general public, other than at a nominal charge which is substantially less than cost; and
- an organization that normally receives more than 25% of its support from either;
- governmental sources, or
- receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities.
Under this definition, for example, a church’s separately incorporated soup kitchen which provides services for no charge to the general public and receives no government funding would be a QCCO, while a church hospital which receives substantial revenues from sales of its services to the general public, would NOT be QCCO.Fortunately, church-related hospitals, nursing homes, universities and other tax-exempts that would not meet the definition of a QCCO because of outside funding will generally satisfy the broad definition of a church plan under Code section 414(e) (which has a parallel definition in ERISA section 3(33)). These are sometimes known as “non-qualified church controlled organizations”, or “Non-QCCOs.” It is defined as a 501(c)(3) entity which is controlled by or “associated with” a church or a convention or association of churches if they share common religious bonds and convictions with that church or convention or association of churches, but which does not satisfy the above definition of “QCCO”. It is under this rule where church hospitals/nursing homes/universities can qualify to have a church plan. However the application of this rule is quite complex, so would-be church plan sponsors often request determinations from the IRS or DoL to confirm status.
To further complicate matters, the rules for administering retirement plans, such as nondiscrimination rules, are often completely different for 3121(w) "steeple" churches than for 414(e) church - related organizations that do not qualify under 3121(w). Thus it is important to ask the question, "What TYPE of church or church-related organization is the plan; the narrow definition of 3121(w), or the broad definition under 414(e)?"
Though there are many determining factors identifying a church-related organization, such as inclusion in the official church directory, one factor that is NOT determinative is nomenclature, There are MANY organizations that contain "Saint" or "Beth" or the like in their organizational names that are NOT churches, so one should NEVER assume that an organization is a church related organization due to the fact that it has a "church-sounding" name. Many organizations founded as church organizations later become divested by these organizations, yet retain the name for brand recognition and other purposes. Conversely, many organizations with secular names are, in fact, churches for purposes of the church plan rules.
Finally, keep in mind that the IRS, DoL and PBGC currently have these church plan definitions under study. They may issue guidance changing some of these definitions in the future. They seem particularly interested in when a plan might change from church plan status to non-church plan status, for example, if a hospital is acquired or sold by a church-related organization. In addition, the recent decision by the Lutheran publishing house, Augsburg Fortress (see Publisher for Evangelical Lutheran Church to Offer only 403(b)), to not pay some workers' pensions has plaintiff's lawyers challenging parts of the church plan definition as well.
For more information on church plan issues, see ((b)lines Ask the Experts - Differences for Church Plans and (b)lines Ask the Expert - Church Plan Issues).
Michael A. Webb, Vice President, Retirement Services, Cammack LaRhette Consulting