II 

112TH CONGRESS 

2D SESSION S. 3532 

To amend the Internal Revenue Code of 1986 to clarify the treatment of 

church pension plans, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 12, 2012 

Mrs. HUTCHISON (for herself and Mr. CARDIN) introduced the following bill; 

which was read twice and referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to clarify 

the treatment of church pension plans, and for other 

purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Church Plan Clarifica5 tion Act of 2012’’. 

6 SEC. 2. CHURCH PLAN CLARIFICATION. 

7 (a) APPLICATION OF CONTROLLED GROUP RULES TO

8 CHURCH PLANS.— 

9 (1) IN GENERAL.—Section 414(c) of the Inter10 nal Revenue Code of 1986 is amended— 


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1 (A) by striking ‘‘For purposes’’ and insert2 ing the following: 

3 ‘‘(1) IN GENERAL.—For purposes’’, and 

4 (B) by adding at the end the following new 

5 paragraph: 

6 ‘‘(2) CHURCH PLANS.— 

7 ‘‘(A) GENERAL RULE.—Except as provided 

8 in subparagraphs (B) and (C), for purposes of 

9 this subsection and subsection (m), an organi10 zation that is otherwise eligible to participate in 

11 a church plan as defined in subsection (e) shall 

12 not be aggregated with another such organiza13 tion and treated as a single employer with such 

14 other organization unless— 

15 ‘‘(i) one such organization provides di16 rectly or indirectly at least 80 percent of 

17 the operating funds for the other organiza18 tion during the preceding tax year of the 

19 recipient organization, and 

20 ‘‘(ii) there is a degree of common 

21 management or supervision between the or22 ganizations. 

23 For purposes of this subparagraph, a degree of 

24 common management or supervision exists only 

25 if the organization providing the operating 


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1 funds is directly involved in the day-to-day op2 erations of the other organization. 

3 ‘‘(B) NONQUALIFIED CHURCH-CON4 TROLLED ORGANIZATIONS.—Notwithstanding 

5 the provisions of subparagraph (A), for pur6 poses of this subsection and subsection (m), an 

7 organization that is a nonqualified church-con8 trolled organization shall be aggregated with 

9 one or more other nonqualified church-con10 trolled organizations, or with an organization 

11 that is not exempt from tax under section 501, 

12 and treated as a single employer with such 

13 other organizations, if at least 80 percent of the 

14 directors or trustees of such organizations are 

15 either representatives of, or directly or indi16 rectly controlled by, the first organization. For 

17 purposes of this subparagraph, a ‘nonqualified 

18 church controlled organization’ shall mean a 

19 church-controlled organization described in sec20 tion 501(c)(3) that is not a qualified church21 controlled organization described in section 

22 3121(w)(3)(B). 

23 ‘‘(C) PERMISSIVE AGGREGATION AMONG

24 CHURCH-RELATED ORGANIZATIONS.—Organiza25 tions described in subparagraph (A) may elect 


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1 to be treated as under common control for pur2 poses of this subsection. Such election shall be 

3 made by the church or convention or association 

4 of churches with which such organizations are 

5 associated within the meaning of subsection 

6 (e)(3)(D), or by an organization determined by 

7 such church or convention or association of 

8 churches to be the appropriate organization for 

9 making such election. 

10 ‘‘(D) PERMISSIVE DISAGGREGATION OF

11 CHURCH-RELATED ORGANIZATIONS.—For pur12 poses of subparagraph (A), in the case of a 

13 church plan (as defined in subsection (e)), any 

14 employer may permissively disaggregate those 

15 entities that are not churches (as defined in 

16 section 403(b)(12)(B)) separately from those 

17 entities that are churches, even if such entities 

18 maintain separate church plans. 

19 ‘‘(E) ANTI-ABUSE RULE.—For purposes of 

20 subparagraphs (A) and (B), the anti-abuse rule 

21 in Treasury Regulation section 1.414(c)–5(f) 

22 shall apply.’’. 

23 (2) EFFECTIVE DATE.—The amendments made 

24 by this subsection shall apply to taxable years beginVerDate Mar 15 2010 05:03 Sep 13, 2012 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3532.IS S3532

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1 ning before, on, or after the date of the enactment 

2 of this Act. 

3 (b) APPLICATION OF CONTRIBUTION AND FUNDING

4 LIMITATIONS TO 403(b) GRANDFATHERED DEFINED

5 BENEFIT PLANS.— 

6 (1) IN GENERAL.—Section 251(e)(5) of the Tax 

7 Equity and Fiscal Responsibility Act of 1982 (Public 

8 Law 97–248), is amended— 

9 (A) by striking ‘‘403(b)(2)’’ and inserting 

10 ‘‘403(b)’’, and 

11 (B) by inserting before the period at the 

12 end the following: ‘‘, and shall be subject to the 

13 applicable limitations of section 415(b) of such 

14 Code as if it were a defined benefit plan under 

15 section 401(a) of such Code and not the limita16 tions of section 415(c) of such Code (relating to 

17 limitation for defined contribution plans).’’. 

18 (2) EFFECTIVE DATE.—The amendments made 

19 by this subsection shall apply as if included in the 

20 enactment of the Tax Equity and Fiscal Responsi21 bility Act of 1982. 

22 (c) AUTOMATIC ENROLLMENT BY CHURCH PLANS.— 

23 (1) IN GENERAL.—This subsection shall super24 sede any law of a State which would directly or indi25 rectly prohibit or restrict the inclusion in any church 


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1 plan (as defined in this subsection) of an automatic 

2 contribution arrangement. 

3 (2) DEFINITION OF AUTOMATIC CONTRIBUTION

4 ARRANGEMENT.—For purposes of this subsection, 

5 the term ‘‘automatic contribution arrangement’’ 

6 means an arrangement— 

7 (A) under which a participant may elect to 

8 have the plan sponsor make payments as con9 tributions under the plan on behalf of the par10 ticipant, or to the participant directly in cash, 

11 and 

12 (B) under which a participant is treated as 

13 having elected to have the plan sponsor make 

14 such contributions in an amount equal to a uni15 form percentage of compensation provided 

16 under the plan until the participant specifically 

17 elects not to have such contributions made (or 

18 specifically elects to have such contributions 

19 made at a different percentage). 

20 (3) NOTICE REQUIREMENTS.— 

21 (A) IN GENERAL.—The plan administrator 

22 of an automatic contribution arrangement shall, 

23 within a reasonable period before such plan 

24 year, provide to each participant to whom the 

25 arrangement applies for such plan year notice 


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1 of the participant’s rights and obligations under 

2 the arrangement which— 

3 (i) is sufficiently accurate and com4 prehensive to apprise the participant of 

5 such rights and obligations, and 

6 (ii) is written in a manner calculated 

7 to be understood by the average partici8 pant to whom the arrangement applies. 

9 (B) ELECTION REQUIREMENTS.—A notice 

10 shall not be treated as meeting the require11 ments of subparagraph (A) with respect to a 

12 participant unless— 

13 (i) the notice includes an explanation 

14 of the participant’s right under the ar15 rangement not to have elective contribu16 tions made on the participant’s behalf (or 

17 to elect to have such contributions made at 

18 a different percentage), 

19 (ii) the participant has a reasonable 

20 period of time, after receipt of the notice 

21 described in clause (i) and before the first 

22 elective contribution is made, to make such 

23 election, and 

24 (iii) the notice explains how contribu25 tions made under the arrangement will be 


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1 invested in the absence of any investment 

2 election by the participant. 

3 (4) EFFECTIVE DATE.—This subsection shall 

4 take effect on the date of the enactment of this Act. 

5 (d) ALLOW CERTAIN PLAN TRANSFERS AND MERG6 ERS.— 

7 (1) IN GENERAL.—Section 414 of the Internal 

8 Revenue Code of 1986 is amended by adding at the 

9 end the following new subsection: 

10 ‘‘(z) CERTAIN PLAN TRANSFERS AND MERGERS.— 

11 ‘‘(1) IN GENERAL.—Under rules prescribed by 

12 the Secretary, except as provided in paragraph (2), 

13 no amount shall be includible in gross income by 

14 reason of— 

15 ‘‘(A) a transfer of all or a portion of the 

16 account balance of a participant or beneficiary, 

17 whether or not vested, from a plan described in 

18 section 401(a) or an annuity contract described 

19 in section 403(b), which is a church plan de20 scribed in subsection (e) to an annuity contract 

21 described in section 403(b), if such plan and 

22 annuity contract are both maintained by the 

23 same church or convention or association of 

24 churches, 


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1 ‘‘(B) a transfer of all or a portion of the 

2 account balance of a participant or beneficiary, 

3 whether or not vested, from an annuity contract 

4 described in section 403(b) to a plan described 

5 in section 401(a) or an annuity contract de6 scribed in section 403(b), which is a church 

7 plan described in subsection (e), if such plan 

8 and annuity contract are both maintained by 

9 the same church or convention or association of 

10 churches, or 

11 ‘‘(C) a merger of a plan described in sec12 tion 401(a), or an annuity contract described in 

13 section 403(b), which is a church plan described 

14 in subsection (e) with an annuity contract de15 scribed in section 403(b), if such plan and an16 nuity contract are both maintained by the same 

17 church or convention or association of churches. 

18 ‘‘(2) LIMITATION.—Paragraph (1) shall not 

19 apply to a transfer or merger unless the partici20 pant’s or beneficiary’s benefit immediately after the 

21 transfer or merger is equal to or greater than the 

22 participant’s or beneficiary’s benefit immediately be23 fore the transfer or merger. 

24 ‘‘(3) QUALIFICATION.—A plan or annuity con25 tract shall not fail to be considered to be described 


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1 in sections 401(a) or 403(b) merely because such 

2 plan or account engages in a transfer or merger de3 scribed in this subsection. 

4 ‘‘(4) DEFINITIONS.—For purposes of this sub5 section: 

6 ‘‘(A) CHURCH.—The term ‘church’ in7 cludes an organization described in subpara8 graph (A) or (B)(ii) of subsection (e)(3). 

9 ‘‘(B) ANNUITY CONTRACT.—The term ‘an10 nuity contract’ includes a custodial account de11 scribed in section 403(b)(7) and a retirement 

12 income account described in section 

13 403(b)(9).’’. 

14 (2) EFFECTIVE DATE.—The amendment made 

15 by this subsection shall apply to transfers or merg16 ers occurring after the date of the enactment of this 

17 Act. 

18 (e) INVESTMENTS BY CHURCH PLANS IN COLLEC19 TIVE TRUSTS.— 

20 (1) IN GENERAL.—In the case of— 

21 (A) a church plan (as defined in section 

22 414(e) of the Internal Revenue Code of 1986), 

23 including a plan described in section 401(a) of 

24 such Code and a retirement income account de25 scribed in section 403(b)(9) of such Code, and 


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1 (B) an organization described in section 

2 414(e)(3)(A) of such Code the principal pur3 pose or function of which is the administration 

4 of such a plan or account, 

5 the assets of such plan, account, or organization (in6 cluding any assets otherwise permitted to be com7 mingled for investment purposes with the assets of 

8 such a plan, account, or organization) may be in9 vested in a group trust otherwise described in Inter10 nal Revenue Service Revenue Ruling 81–100 (as 

11 modified by Internal Revenue Service Revenue Rul12 ings 2004–67 and 2011–1), or any subsequent rev13 enue ruling that supersedes or modifies such revenue 

14 ruling, without adversely affecting the tax status of 

15 the group trust, such plan, account, or organization, 

16 or any other plan or trust that invests in the group 

17 trust. 

18 (2) EFFECTIVE DATE.—This subsection shall 

19 apply to investments made after the date of the en20 actment of this Act. 

Æ 


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