I
103D CONGRESS
2D SESSION
H. R. 3970
To amend the Internal Revenue Code of 1986 to clarify provisions relating
to church pension benefit plans, to modify certain provisions relating
to participants in such plans, to reduce the complexity of and to bring
workable consistency to the applicable rules, to promote retirement sav-
ings and benefits, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MARCH 8, 1994
Mr. CARDIN introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to clarify
provisions relating to church pension benefit plans, to
modify certain provisions relating to participants in such
plans, to reduce the complexity of and to bring workable
consistency to the applicable rules, to promote retirement
savings and benefits, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Church Retirement Benefits Simplification Act of 1993’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. NEW QUALIFICATION PROVISION FOR CHURCH
PLANS.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 (relating to pension, profit-sharing, stock
bonus plans, etc.) is amended by adding after section 401
the following new section:
‘‘SEC. 401A. QUALIFIED CHURCH PLAN.
‘‘(a) GENERAL RULE.—For purposes of all Federal
laws, including this title, a qualified church plan shall be
treated as satisfying the requirements of section 401(a),
and all references in (or pertaining to) this title and such
laws to a plan described in section 401(a) shall include
a qualified church plan. Except as otherwise provided in
this section, no paragraph of section 401(a) shall apply
to a qualified church plan.
‘‘(b) DEFINITION OF QUALIFIED CHURCH PLAN.—
A plan is a qualified church plan if such plan meets the
following requirements:
‘‘(1) CHURCH PLAN REQUIREMENT.—The plan
is a church plan (within the meaning of section
414(e)), and the election provided by section 410(d)
has not been made with respect to such plan.
‘‘(2) EMPLOYEE
CONTRIBUTIONS
ARE
NON-
FORFEITABLE.—An employee’s rights in the employ-
ee’s accrued benefit derived from the employee’s own
contributions are nonforfeitable.
‘‘(3) VESTING REQUIREMENTS.—The plan sat-
isfies the requirements of subparagraph (A) or (B).
‘‘(A) 5-YEAR
VESTING.—A plan satisfies
the requirements of this paragraph if an em-
ployee who has at least 5 years of service has
a nonforfeitable right to 100 percent of the em-
ployee’s accrued benefit derived from employer
contributions.
‘‘(B) 3- TO 7-YEAR VESTING.—A plan sat-
isfies the requirements of this paragraph if an
employee who has completed at least 3 years of
service has a nonforfeitable right to a percent-
age of the employee’s accrued benefit derived
from employer contributions which is not less
than the percentage determined under the fol-
lowing table:
Nonforfeitable
‘‘Years of service
percentage
3 .................................................................
4 .................................................................
5 .................................................................
6 .................................................................
7 or more ...................................................
100.
‘‘(C) YEARS OF SERVICE.—For purposes of
this paragraph, an employee’s years of service
shall be determined in accordance with any rea-
sonable method selected by the plan adminis-
trator.
‘‘(4) 
FUNDING
REQUIREMENTS.—The 
plan
meets the funding requirements of section 401(a)(7)
as in effect on September 1, 1974.
‘‘(5) ADDITIONAL REQUIREMENTS.—
‘‘(A) The plan meets the requirements of
paragraphs (1), (2), (8), (9), (16), (17), (25),
(27), and (30) of section 401(a).
‘‘(B) If the plan includes employees of an
organization which is not a church, the plan
meets the requirements of sections 401(a)(3)
and 401(a)(6) (as in effect on September 1,
1974) and sections 401(a)(4), 401(a)(5), and
401(m).
For purposes of subparagraph (B), the plan admin-
istrator may elect to treat the portion of the plan
maintained by any organization (or organizations)
described in subparagraph (B) as a separate plan
(or plans).
‘‘(c) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) CHURCH.—For purposes of this section,
the term ‘church’ means a church or a convention or
association of churches, including an organization
described in section 414(e)(3)(A) and an organiza-
tion described in section 414(e)(3)(B)(ii), other
than—
‘‘(A) an organization described in section
170(b)(1)(A)(ii) above the secondary school
level (other than a school for religious training),
or
‘‘(B) an organization described in section
170(b)(1)(A)(iii)—
‘‘(i) which provides community service
for inpatient medical care of the sick or in-
jured (including obstetrical care); and
‘‘(ii) not more than 50 percent of the
total patient days of which during any year
are customarily assignable to the cat-
egories of chronic convalescent and rest,
drug and alcoholic, epileptic, mentally defi-
cient, mental, nervous and mental, and tu-
berculosis, and care for the aged.
‘‘(2) SATISFACTION OF TRUST PROVISION.—A
plan shall not fail to be described in this section
merely because such plan is funded through an orga-
nization described in section 414(e)(3)(A) if—
‘‘(A) such organization is subject to fidu-
ciary requirements under applicable State law;
‘‘(B) such organization is separately incor-
porated from the church or convention or asso-
ciation of churches which controls it or with
which it is associated;
‘‘(C) the assets which equitably belong to
the plan are separately accounted for; and
‘‘(D) under the plan, at any time prior to
the satisfaction of all liabilities with respect to
participants and their beneficiaries, such assets
cannot be used for, or diverted to, purposes
other than for the exclusive benefit of partici-
pants and their beneficiaries (except that this
paragraph shall not be construed to preclude
the use of plan assets to defray the reasonable
costs associated with administering the plan
and informing employees and employers of the
availability of the plan).
‘‘(3) CERTAIN SECTIONS APPLY.—Section 401
(b), (c), and (h) shall apply to a qualified church
plan.
‘‘(4) FAILURE
OF
ONE
ORGANIZATION
MAIN-
TAINING PLAN NOT TO DISQUALIFY PLAN.—If one or
more organizations maintaining a church plan fail to
satisfy the requirements of subsection (b), such plan
shall not be treated as failing to satisfy the require-
ments of this section with respect to other organiza-
tions maintaining such plan.
‘‘(5) CERTAIN
EMPLOYEES
NOT
CONSIDERED
HIGHLY
COMPENSATED
AND
EXCLUDED
EMPLOY-
EES.—For purposes of this section, no employee
shall be considered an officer, person whose principal
duties consist in supervising the work of other em-
ployees, or highly compensated employee if such em-
ployee during the year or the preceding year received
compensation from the employer of less than
$50,000. For purposes of this section, there shall be
excluded from consideration employees described in
section 410(b)(3)(A). The Secretary shall adjust the
$50,000 amount under this paragraph at the same
time and in the same manner as under section
415(d).
‘‘(6) TIME FOR DETERMINATION OF APPLICA-
BLE
LAW.—Except where otherwise specified, the
determination of whether a plan meets the require-
ments of subsection (b) shall be made in accordance
with the provisions of this title as in effect imme-
diately following enactment of the Church Retire-
ment Benefits Simplification Act of 1993.’’
(b) EFFECT ON EXISTING PLANS.—A church plan
(within the meaning of section 414(e) of the Internal Rev-
enue Code of 1986) which is otherwise subject to the appli-
cable requirements of section 401(a) of such Code and
which has not made the election provided by section
410(d) of such Code shall not be subject to section 401A
of such Code, and shall remain subject to the applicable
requirements of section 401(a) of such Code, unless the
board of directors or trustees of an organization described
in section 414(e)(3)(A) of such Code, or other appropriate
governing body responsible for maintaining the plan,
adopts a resolution under which the church plan is made
subject to section 401A of such Code.
(c) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendment made by
this section shall be effective for years beginning
after December 31, 1993, except that the provisions
of section 401A(b)(3) of the Internal Revenue Code
of 1986 shall be effective for years beginning after
December 31, 1994. No regulation or ruling under
section 401(a) of such Code issued after December
31, 1992, shall apply to a qualified church plan de-
scribed in section 401A of such Code unless such
regulation or ruling is specifically made applicable
by its terms to qualified church plans.
(2) PRIOR YEARS.—A church plan (within the
meaning of section 414(e) of such Code) shall not be
deemed to have failed to satisfy the applicable re-
quirements of section 401(a) of such Code for any
year beginning prior to January 1, 1994.
SEC. 3. RETIREMENT INCOME ACCOUNTS OF CHURCHES.
(a) IN GENERAL.—Section 403(b)(9) is amended to
read as follows:
‘‘(9) RETIREMENT
INCOME
ACCOUNTS
PRO-
VIDED BY CHURCHES, ETC.—
‘‘(A) AMOUNTS
PAID
TREATED
AS
CON-
TRIBUTIONS.—For purposes of this title—
‘‘(i) a retirement income account shall
be treated as an annuity contract described
in this subsection, and
‘‘(ii) amounts paid by an employer de-
scribed in paragraph (1)(A) or by a church
or a convention or association of churches,
including an organization described in sec-
tion 414(e)(3)(A) or 414(e)(3)(B)(ii), to a
retirement income account shall be treated
as amounts contributed by the employer
for an annuity contract for the employee
on whose behalf such account is main-
tained.
‘‘(B) RETIREMENT
INCOME
ACCOUNT.—
For purposes of this paragraph, the term ‘re-
tirement income account’ means a program es-
tablished or maintained by a church, a conven-
tion or association of churches, including an or-
ganization described in section 414(e)(3)(A), to
provide benefits under this subsection for an
employee described in paragraph (1) or an indi-
vidual described in paragraph (13)(F), or their
beneficiaries.’’
(b) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendment made by
this section shall be effective for years beginning
after December 31, 1993.
(2) PRIOR YEARS.—A church plan (within the
meaning of section 414(e)) shall not be deemed to
have failed to satisfy the applicable requirements of
section 403(b) for any year beginning prior to Janu-
ary 1, 1994.
SEC. 4. CONTRACTS PURCHASED BY A CHURCH.
(a) 
CLARIFICATION
OF
APPLICABLE
NON-
DISCRIMINATION REQUIREMENTS.—Subparagraph (D) of
section 403(b)(1) is amended to read as follows:
‘‘(D) except in the case of a contract pur-
chased by a church, such contract is purchased
under a plan which meets the nondiscrimination
requirements of paragraph (12)(A), and’’.
(b) CERTAIN COVERAGE RULES APPLY.—Subpara-
graph (B) of section 403(b)(12) is amended to read as
follows:
‘‘(B) CERTAIN REQUIREMENTS.—If a con-
tract purchased by a church is purchased under
a church plan (within the meaning of section
414(e)) by—
‘‘(i) an organization described in sec-
tion 170(b)(1)(A)(ii) above the secondary
school level (other than a school for reli-
gious training), or
‘‘(ii) an organization described in sec-
tion 170(b)(1)(A)(iii)—
‘‘(I) which provides community
service for inpatient medical care of
the sick or injured (including obstetri-
cal care), and
‘‘(II) no more than 50 percent of
the total patient days of which during
any year are customarily assignable to
the categories of chronic convalescent
and rest, drug and alcoholic, epileptic,
mentally deficient, mental, nervous
and mental, and tuberculosis, and
care for the aged,
the plan meets the requirements of sec-
tions 401(a)(3) and 401(a)(6), as in effect
on September 1, 1974, and sections
401(a)(4), 
401(a)(5), 
401(a)(17), 
and
401(m).
For purposes of this subparagraph, the plan ad-
ministrator may elect to treat the portion of the
plan maintained by any organization (or organi-
zations) described in this subparagraph as a
separate plan (or plans).’’
(c) SPECIAL
RULES
FOR
CHURCHES.—Section
403(b) is amended by adding the following new paragraph
at the end thereof:
‘‘(13) DEFINITIONS AND SPECIAL RULES.—
‘‘(A) 
CONTRACT
PURCHASED
BY
A
CHURCH.—For purposes of this subsection, the
term ‘contract purchased by a church’ includes
an annuity described in section 403(b)(1), a
custodial 
account 
described 
in 
section
403(b)(7), and a retirement income account de-
scribed in section 403(b)(9).
‘‘(B) CHURCH.—For purposes of this sub-
section, the term ‘church’ means a church or a
convention or association of churches, including
an 
organization 
described 
in 
section
414(e)(3)(A) or section 414(e)(3)(B)(ii).
‘‘(C) VESTING.—In the case of a contract
purchased by a church under a church plan
(within the meaning of section 414(e))—
‘‘(i) 
sections 
403(b)(1)(C) 
and
403(b)(6) shall not apply;
‘‘(ii) such contract is not described in
this subsection unless an employee’s rights
in the employee’s accrued benefit under
such contract which is attributable to con-
tributions made pursuant to a salary re-
duction agreement are nonforfeitable; and
‘‘(iii) such contract is not described in
this subsection unless the plan satisfies the
requirements of either of the following:
‘‘(I) The plan provides that an
employee who has at least 5 years of
service has a nonforfeitable right to
100 percent of the employee’s accrued
benefit derived from employer con-
tributions.
‘‘(II) The plan provides that an
employee who has completed at least
3 years of service has a nonforfeitable
right to a percentage of the employ-
ee’s accrued benefit derived from em-
ployer contributions which percentage
is not less than the percentage deter-
mined under the following table:
Nonforfeitable
‘‘Years of service
percentage
3 ..............................................
4 ..............................................
5 ..............................................
6 ..............................................
7 or more ................................
100.
For purposes of clause (iii), an employee’s years
of service shall be determined in accordance
with any reasonable method selected by the
plan administrator.
‘‘(D) FAILURE
OF
ONE
ORGANIZATION
MAINTAINING
PLAN
NOT
TO
DISQUALIFY
PLAN.—In the case of a contract purchased by
a church under a church plan (within the mean-
ing of section 414(e)), if one or more organiza-
tions maintaining the church plan fails to sat-
isfy the requirements of this section, such plan
shall not be treated as failing to satisfy the re-
quirements of this section with respect to other
organizations maintaining such plan.
‘‘(E) CERTAIN EMPLOYEES NOT CONSID-
ERED HIGHLY COMPENSATED AND EXCLUDED
EMPLOYEES.—For purposes of this subsection,
no employee for whom a contract is purchased
by a church shall be considered an officer, per-
son whose principal duties consist in super-
vising the work of other employees, or highly
compensated employee if such employee during
the year or the preceding year received com-
pensation from the employer of less than
$50,000. For purposes of this subsection, there
shall be excluded employees described in section
410(b)(3)(A). The Secretary shall adjust the
$50,000 amount under this subparagraph at
the same time and in the same manner as
under section 415(d).
‘‘(F) CERTAIN
MINISTERS
MAY
PARTICI-
PATE.—For purposes of this subsection—
‘‘(i) IN
GENERAL.—The term ‘em-
ployee’ shall include a duly ordained, com-
missioned, or licensed minister of a church
in the exercise of his or her ministry who
is a self-employed individual (within the
meaning of section 401(c)(1)(B)) or any
duly ordained, commissioned, or licensed
minister of a church in the exercise of his
or her ministry who is employed by an or-
ganization other than an organization de-
scribed in section 501(c)(3).
‘‘(ii) TREATMENT AS EMPLOYER AND
EMPLOYEE.—A self-employed minister de-
scribed in clause (i) shall be treated as his
or her own employer which is an organiza-
tion described in section 501(c)(3) and
which is exempt from tax under section
501(a). Such an employee who is employed
by an organization other than an organiza-
tion described in section 501(c)(3) shall be
treated as employed by an organization de-
scribed in section 501(c)(3) and which is
exempt from tax under section 501(a).
‘‘(iii) COMPENSATION.—In determin-
ing the compensation of a self-employed
minister described in clause (i), the earned
income (within the meaning of section
401(c)(2)) of such minister shall be sub-
stituted for ‘the amount of compensation
which is received from the employer’ under
paragraph (3).
In determining the years of service of a self-em-
ployed minister described in clause (i), the
years (and portions of years) in which such
minister was a self-employed individual (within
the meaning of section 401(c)(1)(B)) shall be
included for purposes of paragraph (4).
‘‘(G) TIME FOR DETERMINATION OF AP-
PLICABLE LAW.—Except where otherwise speci-
fied, the determination of whether a contract
purchased by a church meets the requirements
of this subsection shall be made in accordance
with the provisions of this title as in effect im-
mediately following enactment of the Church
Retirement Benefits Simplification Act of
1993.’’
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by
this section shall be effective for years beginning
after December 31, 1993, except that the provisions
of section 403(b)(13)(C)(iii) of the Internal Revenue
Code of 1986 shall be effective for years beginning
after December 31, 1994. No regulation or ruling is-
sued under section 401(a) or 403(b) of such Code
after December 31, 1993, shall apply to a contract
purchased by a church unless such regulation or rul-
ing is specifically made applicable by its terms to
such contracts. For purposes of applying the exclu-
sion allowance of section 403(b)(2) of such Code and
the limitations of section 415 of such Code, any con-
tribution made after December 31, 1994, which is
forfeitable pursuant to section 403(b)(13)(C) of such
Code shall be treated as an amount contributed to
the contract in the year for which such contribution
is made and not in the year the contribution be-
comes nonforfeitable.
(2) PRIOR YEARS.—A church plan (within the
meaning of section 414(e) of such Code) shall not be
deemed to have failed to satisfy the applicable re-
quirements of section 403(b) of such Code for any
year beginning prior to January 1, 1993.
SEC. 5. CHANGE IN DISTRIBUTION REQUIREMENT FOR RE-
TIREMENT INCOME ACCOUNTS.
(a) IN GENERAL.—Subparagraph (A) of section
403(b)(11) is amended by inserting ‘‘or, in the case of a
retirement income account described in paragraph (9),
within the meaning of section 401(k)(2)’’ after ‘‘section
72(m)(7)’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall be effective for years beginning after De-
cember 31, 1988.
SEC. 6. REQUIRED BEGINNING DATE FOR DISTRIBUTIONS
UNDER CHURCH PLANS.
(a) IN GENERAL.—Subparagraph (C) of section
401(a)(9) is amended by striking the last sentence and
inserting the following new sentence: ‘‘For purposes of this
subparagraph, the term ‘church plan’ has the meaning
given such term by section 414(e).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall be effective as if included in the provision
of the Tax Reform Act of 1986 to which such amendment
relates.
SEC. 7. PARTICIPATION OF MINISTERS IN CHURCH PLANS.
(a) IN GENERAL.—Section 414 is amended by adding
the following new subsection:
‘‘(u) SPECIAL RULES
FOR MINISTERS.—Notwith-
standing any other provision of this title, if a duly or-
dained, commissioned, or licensed minister of a church in
the exercise of his or her ministry participates in a church
plan (within the meaning of section 414(e)), then—
‘‘(1) such minister shall be excluded from con-
sideration 
for 
purposes 
of 
applying 
sections
401(a)(3), 401(a)(4), and 401(a)(5), as in effect on
September 
1, 
1974, 
and 
sections 
401(a)(4),
401(a)(5), 
401(a)(26), 
401(k)(3), 
401(m),
403(b)(1)(D) (including section 403(b)(12)), and
410 to any stock bonus, pension, profit-sharing, or
annuity plan (including an annuity described in sec-
tion 403(b) or a retirement income account de-
scribed in section 403(b)(9)) described in this part.
For purposes of this part, the church plan in which
such minister participates shall be treated as a plan
or contract meeting the requirements of section
401(a), 
401A, 
or 
403(b) 
(including 
section
403(b)(9)) with respect to such minister’s participa-
tion; and
‘‘(2) such minister shall be excluded from con-
sideration for purposes of applying an applicable sec-
tion to any plan providing benefits described in an
applicable section.
For purposes of paragraph (2), the term ‘applicable sec-
tion’ means section 79(d), section 105(h), paragraphs (1),
(2), and (3) of section 120(c), section 125(b), section
127(b)(2), and paragraphs (2), (3), and (8) of section
129(d).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall be effective for years beginning before,
on, or after December 31, 1993.
SEC. 8. CERTAIN RULES AGGREGATING EMPLOYEES NOT
TO APPLY TO CHURCHES, ETC.
(a) IN GENERAL.—Section 414 is amended by adding
the following new subsection:
‘‘(v) CERTAIN RULES AGGREGATING EMPLOYEES
NOT TO APPLY TO CHURCHES, ETC.—
‘‘(1) IN GENERAL.—If the election provided by
paragraph (3) is made, for purposes of sections
401(a)(3), 401(a)(4), and 401(a)(5), as in effect on
September 
1, 
1974, 
and 
sections 
401(a)(4),
401(a)(5), 401(a)(17), 401(a)(26), 401(h), 401(m),
410(b), 411(d)(1), and 416, subsections (b), (c),
(m), (o), and (t) of this section shall not apply to
treat the employees of church-related organizations
as employed by a single employer, except in the case
of employees of church-related organizations which
are not exempt from tax under section 501(a) and
which have a common, immediate parent.
‘‘(2) DEFINITION OF CHURCH-RELATED ORGA-
NIZATION.—For purposes of this subsection, the
term ‘church-related organization’ means a church
or a convention or association of churches, an orga-
nization described in section 414(e)(3)(A), an orga-
nization described in section 414(e)(3)(B)(ii), or an
organization the employees of which would be aggre-