The Church Alliance is a coalition of the chief executive officers of 38 church benefit programs covering mainline Protestant denominations, two branches of Judaism and Catholic dioceses, schools and institutions. These benefit programs provide pension and health benefits to more than one million clergy, lay workers, and their family members.
The Church Alliance was formed in 1975 as the “Church Alliance for Clarification of ERISA” to address the problems presented for established church plans by the Employee Retirement Income Security Act of 1974 (ERISA). As is explained in more detail below, ERISA, when passed in 1974, threatened the ability of church plans to continue to be structured as they were, and as some had been for over 200 years.
The history of the Church Alliance is directly related to the need of church benefit programs to provide education about the nature of church plans, the unique nature of employment relationships between clergy and churches, and the varying governance traditions used among this country’s religious denominations. Over the years, as employee benefit legislation has been enacted, little consideration has been given to church benefit plans and programs and the unique environment in which these plans are maintained and function, resulting in significant legal compliance issues for these plans. Since its establishment in 1974, the Church Alliance has worked with Congress and agency regulators to create special rules, or modify existing ones, to address these issues. This page describes and provides background on some of the unique features of church benefit plans and programs.
When ERISA was enacted in 1974, church plans were exempted from it unless they affirmatively elected to be subject to it. However, the original definition of “church plan” in both ERISA and the Internal Revenue Code (Code) bore little resemblance to a church plan in operation. The first part of the original church plan definition was satisfactory. Under it, a church plan was a plan established and maintained for its employees by a church or by an association or convention of churches which is exempt from tax under Code section 501. However, the original church plan definition went on to say, in effect, that only the employees of church agencies for which the plan was maintained on January 1, 1974 could participate in the plan—no new church agencies could be admitted to plan participation. In addition, the original definition provided that, after December 31, 1982, the plan would not be a church plan if it covered the employees of any church agency. This meant that, after 1982, no employee of a church-related nursing home, inner-city agency, children’s home, college or hospital could receive pension or welfare benefits from a church plan. Thus, under ERISA as originally passed, a church pension board had to make one of two difficult choices by the end of 1982: either cease to cover the employees of church agencies or divide the church plan into two plans—one non-ERISA plan covering denominational and local church employees, and the other, an ERISA-covered plan for the employees of church agencies.
As noted above, the Church Alliance was formed to advocate for changes to the church plan definitions in ERISA and the Code. As a result of the Church Alliance’s efforts, Congress revised the definition of “church plan” when it passed the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Under the revised MPPAA definition, a church plan could continue to provide retirement and welfare benefits to the employees of all church agencies.
Following the passage of MPPAA, the members of the Church Alliance discussed among themselves whether there was a need for the coalition to continue to exist. In the meantime, the IRS issued Revenue Ruling 82-102, which held that only insurance companies could provide section 403(b) annuities. Because many church pension boards maintained 403(b) plans, but not through insurance companies, the Church Alliance immediately began work to secure a legislative clarification that church 403(b) plans and programs could continue to qualify as such. As a result of these efforts, a provision was included in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which created section 403(b)(9) of the Code. This section of the Code establishes retirement income accounts for churches as the equivalent of section 403(b) annuities for secular charitable organizations.
Following the enactment of TEFRA, the Church Alliance has remained in existence in order to ensure that benefit-related legislative and regulatory initiatives continue to fully address the unique nature of church plans. In addition, in some cases the Church Alliance has acted in a “self-regulatory” manner by advocating for changes that actually limited in some fashion the tax rules and regulations that govern church benefit plans and clergy. As a result, over the years, the Church Alliance has been involved with numerous other pieces of legislation (and legislative proposals) that directly impact church benefit plans and programs. Specifically, the Church Alliance was directly involved in obtaining special church plan provisions in the following legislation:
- Tax Reform Act of 1986. The Church Alliance successfully advocated for the following provisions in the Tax Reform Act of 1986:
- An exception for churches and qualified church-controlled organizations from the nondiscrimination and coverage rules which were for the first time imposed on 403(b) plans.
- A clarification that certain church self-funded death benefit arrangements can be treated as life insurance.
- Special contribution limits for church employees and for foreign missionaries.
- A “window” to allow ministers who had opted out of Social Security an opportunity to opt back in, while at the same time tightening the requirements for allowing ministers to be able to opt out of Social Security for religious reasons in the future.
- An exemption under Code section 501(m) so that the provision of retirement and/or welfare benefits by church pension boards would not be taxed as the provision of “commercial-type insurance.”
- Technical and Miscellaneous Revenue Act of 1988. The Church Alliance successfully advocated for a provision that allowed churches and qualified church-controlled organizations to continue to be subject to the traditional rules applicable to nonqualified deferred compensation plans instead of the requirements of Code section 457.
- Small Business Job Protection Act of 1996 (SBJPA). Congress included the following provisions in the SBJPA to address Church Alliance issues:
- A clarification that SECA taxes do not apply to retirement payments made to ministers from a church plan (including any portion of the retirement payments that is excludible from taxable income under Code section 107 as a housing allowance).
- A provision allowing self-employed ministers and chaplains to participate in their denominational 403(b) plans. (Note: These provisions were originally part of the Church Retirement Benefits Simplification Act of 1995 (H.R. 528/S.881) and were folded into the SBJPA.)
- National Securities Markets Improvement Act of 1996. This Act included a provision clarifying that church plans and their investment pools are not subject to the Investment Company Act of 1940, the Securities Act of 1933 and various other securities laws. State “blue sky” laws that require registration or qualification of securities were preempted with respect to church plans, as well as state laws applicable to investment companies or brokers, dealers, investment advisors or agents.
- Taxpayer Relief Act of 1997. This Act included an exemption from the HIPAA underwriting prohibition for denominational health care plans in existence on July 15, 1997 to the extent that the plan covers employers with 10 or fewer employees or self-employed individuals.
- Church Plan Parity and Entanglement Prevention Act. This legislation (enacted in 2000) addressed state insurance law concerns of health and welfare plans maintained by churches, particularly those which are self-funded. It provides that, for purposes of state insurance laws, church plans are treated as single employer plans, not multiple employer welfare arrangements (MEWAs).
- Job Creation and Worker Assistance Act of 2002. This legislation restored certain special church plan provisions which the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) had inadvertently deleted, e.g., aggregation of church service for certain purposes, the special 415(c) $10,000 contribution limit ($40,000 lifetime limit) available to church employers, and foreign missionary contributions.
- Clergy Housing Allowance Clarification Act of 2002. The Church Alliance successfully advocated for Congress to clarify that the housing allowance exclusion from compensation for clergy under Code section 107 is limited to the annual fair rental value of the residence in which the clergyperson resides. The Church Alliance determined that this clarification of section 107 was necessary as a result of a Tax Court decision that had specifically rejected the argument that housing allowance should be limited to the annual fair rental value of the residence in which a clergyperson resides.
- Collective Investment Trust Act of 2004. This Act amended securities laws to allow church pension boards to be invested in collective investment trusts maintained by financial institutions, e.g., Revenue Ruling 2011-1 trusts.
- Pension Protection Act of 2006. This Act included provisions to change the maximum limitation on benefits under Code section 415(b) to eliminate the compensation test limit for non-highly compensated employees employed by churches and church elementary or secondary schools and for members of religious orders who have no earnings, and to allow a church 401(a) defined contribution plan in existence on April 17, 2002 to self-annuitize benefits.
In addition to these legislative successes, the Church Alliance has also worked with the Internal Revenue Service and the Department of Treasury to address concerns involving the following regulatory issues:
- Exemption from 990 Filing. When the IRS informally determined in 1982 that a church pension board was not an “integrated auxiliary” of the denomination it served and was therefore required to file an annual information return on IRS Form 990, the Church Alliance eventually obtained an administrative exemption from the IRS exempting church pension boards from this filing.
- Nondiscrimination and Coverage Safe Harbor. After the Church Alliance explained the difficulty church plans have in satisfying certain nondiscrimination rules due to their unique structures, the IRS granted an extension to the effective date of certain nondiscrimination regulations as applicable to church 401(a) qualified plans.
- Required Minimum Distribution Rules. The Church Alliance successfully advocated for regulations allowing church 403(b)(9) retirement income accounts to self-annuitize plan benefits.
- Small Employer Health Care Tax Credit. Based on the efforts of the Church Alliance, the IRS determined that small employers participating in a self-funded denominational health care plan were eligible for the small employer health care premium tax credit.
- 403(b) Prototype Plans. The Church Alliance requested that church 403(b)(9) plans be permitted to be established as “prototype” plans under a new Revenue Procedure soon to be promulgated by the Internal Revenue Service. IRS officials have indicated publicly that the request will be granted.