Church Plan Clarification Act of 2015

Bill: 114-s-2308
Sponsor: full_name: Sen. Cardin, Benjamin L. [D-MD]
Introduced: 2015-11-19
Policy area: Taxation
Subjects: Employee benefits and pensions

Federal preemption

Financial services and investments

Income tax deferral

Religion

Tax-exempt organizations
Latest action: action_date: 2015-12-11
text: Held at the desk.

Summaries:
action_date: 2015-11-19
action_desc: Introduced in Senate
text: <p><strong>Church Plan Clarification Act of 2015 </strong></p> <p>This bill amends the Internal Revenue Code, with respect to the tax treatment of church pension plans, to: (1) provide that an organization otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with it unless one such organization provides at least 80% of the operating funds for the other organization during the recipient organization's preceding tax year and there is a degree of common management or supervision between the organizations, (2) adopt benefit accrual limitations for church defined benefit plans established before 1982, and (3) allow transfers and mergers of qualified church retirement plans.</p> <p>The bill also: (1) preempts any state law relating to wage, salary, or payroll payment, collection, deduction, garnishment, assignment, or withholding that would directly or indirectly prohibit or restrict the inclusion in any church plan of an automatic contribution arrangement; and (2) allows church plans and their supporting organizations to invest plan assets in a group trust (as defined by Internal Revenue Service Revenue Rulings). </p>

action_date: 2015-12-10
action_desc: Passed Senate without amendment
text: <p>(This measure has not been amended since it was introduced. The summary has been expanded because action occurred on the measure.)</p> <p><strong>Church Plan Clarification Act of 2015 </strong></p> <p>(Sec. 2) This bill amends the Internal Revenue Code, with respect to the tax treatment of church pension plans, to: (1) provide that an organization otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with it for pension benefit rules and testing purposes unless one such organization provides at least 80% of the operating funds for the other organization during the recipient organization's preceding tax year and there is a degree of common management or supervision between the organizations, and (2) allow transfers and mergers of qualified church retirement plans without tax consequences.</p> <p>The bill amends the Tax Equity and Fiscal Responsibility Act of 1982 to adopt benefit accrual limitations for church defined benefits plans established before 1982. </p> <p>The bill also: (1) preempts any state law relating to wage, salary, or payroll payment, collection, deduction, garnishment, assignment, or withholding that would prohibit or restrict the inclusion in any church plan of an automatic contribution arrangement; and (2) allows church plans and their supporting organizations to invest plan assets in a group trust (as defined by Internal Revenue Service Revenue Rulings). </p>

tv_txt: II 114th CONGRESS 1st Session S. 2308 IN THE SENATE OF THE UNITED STATES November 19, 2015 Mr. Cardin (for himself, Mr. Portman , and Ms. Klobuchar ) 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. Short title This Act may be cited as the Church Plan Clarification Act of 2015 . 2. Church plan clarification (a) Application of controlled group rules to church plans (1) In general Section 414(c) of the Internal Revenue Code of 1986 is amended— (A) by striking For purposes and inserting the following: (1) In general Except as provided in paragraph (2), for purposes , and (B) by adding at the end the following new paragraph: (2) Special rules relating to church plans (A) General rule Except as provided in subparagraphs (B) and (C), for purposes of this subsection and subsection (m), an organization that is otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with such other organization for a plan year beginning in a taxable year unless— (i) one such organization provides (directly or indirectly) at least 80 percent of the operating funds for the other organization during the preceding tax year of the recipient organization, and (ii) there is a degree of common management or supervision between the organizations such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization. (B) Nonqualified church-controlled organizations Notwithstanding subparagraph (A), for purposes of this subsection and subsection (m), an organization that is a nonqualified church-controlled organization shall be aggregated with 1 or more other nonqualified church-controlled organizations, or with an organization that is not exempt from tax under section 501, and treated as a single employer with such other organization, if at least 80 percent of the directors or trustees of such other organization are either representatives of, or directly or indirectly controlled by, such nonqualified church-controlled organization. For purposes of this subparagraph, the term nonqualified church-controlled organization means a church-controlled tax-exempt organization described in section 501(c)(3) that is not a qualified church-controlled organization (as defined in section 3121(w)(3)(B)). (C) Permissive aggregation among church-related organizations The church or convention or association of churches with which an organization described in subparagraph (A) is associated (within the meaning of subsection (e)(3)(D)), or an organization designated by such church or convention or association of churches, may elect to treat such organizations as a single employer for a plan year. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe. (D) Permissive disaggregation of church-related organizations For purposes of subparagraph (A), in the case of a church plan, an employer may elect to treat churches (as defined in section 403(b)(12)(B)) separately from entities that are not churches (as so defined), without regard to whether such entities maintain separate church plans. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe. . (2) Clarification relating to application of anti-abuse rule The rule of 26 CFR 1.414(c)–5(f) shall continue to apply to each paragraph of section 414(c) of the Internal Revenue Code of 1986, as amended by paragraph (1). (3) Effective date The amendments made by paragraph (1) shall apply to years beginning before, on, or after the date of the enactment of this Act. (b) Application of contribution and funding limitations to 403( b ) grandfathered defined benefit plans (1) In general Section 251(e)(5) of the Tax Equity and Fiscal Responsibility Act of 1982 ( Public Law 97–248 ), is amended— (A) by striking 403(b)(2) and inserting 403(b) , and (B) by inserting before the period at the end the following: , and shall be subject to the applicable limitations of section 415(b) of such Code as if it were a defined benefit plan under section 401(a) of such Code (and not to the limitations of section 415(c) of such Code). . (2) Effective date The amendments made by this subsection shall apply to years beginning before, on, or after the date of the enactment of this Act. (c) Automatic enrollment by church plans (1) In general This subsection shall supersede any law of a State that relates to wage, salary, or payroll payment, collection, deduction, garnishment, assignment, or withholding which would directly or indirectly prohibit or restrict the inclusion in any church plan (as defined in section 414(e) of the Internal Revenue Code of 1986) of an automatic contribution arrangement. (2) Definition of automatic contribution arrangement For purposes of this subsection, the term automatic contribution arrangement means an arrangement— (A) under which a participant may elect to have the plan sponsor or the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash, (B) under which a participant is treated as having elected to have the plan sponsor or the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage), and (C) under which the notice and election requirements of paragraph (3), and the investment requirements of paragraph (4), are satisfied. (3) Notice requirements (A) In general The plan sponsor of, or plan administrator or employer maintaining, an automatic contribution arrangement shall, within a reasonable period before the first day of each plan year, provide to each participant to whom the arrangement applies for such plan year notice of the participant’s rights and obligations under the arrangement which— (i) is sufficiently accurate and comprehensive to apprise the participant of such rights and obligations, and (ii) is written in a manner calculated to be understood by the average participant to whom the arrangement applies. (B) Election requirements A notice shall not be treated as meeting the requirements of subparagraph (A) with respect to a participant unless— (i) the notice includes an explanation of the participant’s right under the arrangement not to have elective contributions made on the participant’s behalf (or to elect to have such contributions made at a different percentage), (ii) the participant has a reasonable period of time, after receipt of the explanation described in clause (i) and before the first elective contribution is made, to make such election, and (iii) the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the participant. (4) Default investment If no affirmative investment election has been made with respect to any automatic contribution arrangement, contributions to such arrangement shall be invested in a default investment selected with the care, skill, prudence, and diligence that a prudent person selecting an investment option would use. (5) Effective date This subsection shall take effect on the date of the enactment of this Act. (d) Allow certain plan transfers and mergers (1) In general Section 414 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (z) Certain plan transfers and mergers (1) In general Under rules prescribed by the Secretary, except as provided in paragraph (2), no amount shall be includible in gross income by reason of— (A) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b) to an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches, (B) a transfer of all or a portion of the accrued benefit of a participant or beneficiary from an annuity contract described in section 403(b) to a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches, or (C) a merger of a church plan that is a plan described in section 401(a), or an annuity contract described in section 403(b) with an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches. (2) Limitation Paragraph (1) shall not apply to a transfer or merger unless the 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 such total accrued benefit is nonforfeitable after the transfer or merger. (3) Qualification A plan or annuity contract shall not fail to be considered to be described in sections 401(a) or 403(b) merely because such plan or annuity contract engages in a transfer or merger described in this subsection. (4) Definitions For purposes of this subsection: (A) Church or convention or association of churches The term church or convention or association of churches includes an organization described in subparagraph (A) or (B)(ii) of subsection (e)(3). (B) Annuity contract The term annuity contract includes a custodial account described in section 403(b)(7) and a retirement income account described in section 403(b)(9). (C) Accrued benefit The term accrued benefit means— (i) in the case of a defined benefit plan, the employee's accrued benefit determined under the plan, and (ii) in the case of a plan other than a defined benefit plan, the balance of the employee's account under the plan. . (2) Effective date The amendment made by this subsection shall apply to transfers or mergers occurring after the date of the enactment of this Act. (e) Investments by church plans in collective trusts (1) In general In the case of— (A) a church plan (as defined in section 414(e) of the Internal Revenue Code of 1986), including a plan described in section 401(a) of such Code and a retirement income account described in section 403(b)(9) of such Code, and (B) an organization described in section 414(e)(3)(A) of such Code the principal purpose or function of which is the administration of such a plan or account, the assets of such plan, account, or organization (including any assets otherwise permitted to be commingled for investment purposes with the assets of such a plan, account, or organization) may be invested in a group trust otherwise described in Internal Revenue Service Revenue Ruling 81–100 (as modified by Internal Revenue Service Revenue Rulings 2004–67, 2011–1, and 2014–24), or any subsequent revenue ruling that supersedes or modifies such revenue ruling, without adversely affecting the tax status of the group trust, such plan, account, or organization, or any other plan or trust that invests in the group trust. (2) Effective date This subsection shall apply to investments made after the date of the enactment of this Act.

tv_txt: 114th CONGRESS 1st Session S. 2308 IN THE SENATE OF THE UNITED STATES AN ACT To amend the Internal Revenue Code of 1986 to clarify the treatment of church pension plans, and for other purposes.

1. Short title This Act may be cited as the Church Plan Clarification Act of 2015 . 2. Church plan clarification (a) Application of controlled group rules to church plans (1) In general Section 414(c) of the Internal Revenue Code of 1986 is amended— (A) by striking For purposes and inserting the following: (1) In general Except as provided in paragraph (2), for purposes , and (B) by adding at the end the following new paragraph: (2) Special rules relating to church plans (A) General rule Except as provided in subparagraphs (B) and (C), for purposes of this subsection and subsection (m), an organization that is otherwise eligible to participate in a church plan shall not be aggregated with another such organization and treated as a single employer with such other organization for a plan year beginning in a taxable year unless— (i) one such organization provides (directly or indirectly) at least 80 percent of the operating funds for the other organization during the preceding tax year of the recipient organization, and (ii) there is a degree of common management or supervision between the organizations such that the organization providing the operating funds is directly involved in the day-to-day operations of the other organization. (B) Nonqualified church-controlled organizations Notwithstanding subparagraph (A), for purposes of this subsection and subsection (m), an organization that is a nonqualified church-controlled organization shall be aggregated with 1 or more other nonqualified church-controlled organizations, or with an organization that is not exempt from tax under section 501, and treated as a single employer with such other organization, if at least 80 percent of the directors or trustees of such other organization are either representatives of, or directly or indirectly controlled by, such nonqualified church-controlled organization. For purposes of this subparagraph, the term nonqualified church-controlled organization means a church-controlled tax-exempt organization described in section 501(c)(3) that is not a qualified church-controlled organization (as defined in section 3121(w)(3)(B)). (C) Permissive aggregation among church-related organizations The church or convention or association of churches with which an organization described in subparagraph (A) is associated (within the meaning of subsection (e)(3)(D)), or an organization designated by such church or convention or association of churches, may elect to treat such organizations as a single employer for a plan year. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe. (D) Permissive disaggregation of church-related organizations For purposes of subparagraph (A), in the case of a church plan, an employer may elect to treat churches (as defined in section 403(b)(12)(B)) separately from entities that are not churches (as so defined), without regard to whether such entities maintain separate church plans. Such election, once made, shall apply to all succeeding plan years unless revoked with notice provided to the Secretary in such manner as the Secretary shall prescribe. . (2) Clarification relating to application of anti-abuse rule The rule of 26 CFR 1.414(c)–5(f) shall continue to apply to each paragraph of section 414(c) of the Internal Revenue Code of 1986, as amended by paragraph (1). (3) Effective date The amendments made by paragraph (1) shall apply to years beginning before, on, or after the date of the enactment of this Act. (b) Application of contribution and funding limitations to 403( b ) grandfathered defined benefit plans (1) In general Section 251(e)(5) of the Tax Equity and Fiscal Responsibility Act of 1982 ( Public Law 97–248 ), is amended— (A) by striking 403(b)(2) and inserting 403(b) , and (B) by inserting before the period at the end the following: , and shall be subject to the applicable limitations of section 415(b) of such Code as if it were a defined benefit plan under section 401(a) of such Code (and not to the limitations of section 415(c) of such Code). . (2) Effective date The amendments made by this subsection shall apply to years beginning before, on, or after the date of the enactment of this Act. (c) Automatic enrollment by church plans (1) In general This subsection shall supersede any law of a State that relates to wage, salary, or payroll payment, collection, deduction, garnishment, assignment, or withholding which would directly or indirectly prohibit or restrict the inclusion in any church plan (as defined in section 414(e) of the Internal Revenue Code of 1986) of an automatic contribution arrangement. (2) Definition of automatic contribution arrangement For purposes of this subsection, the term automatic contribution arrangement means an arrangement— (A) under which a participant may elect to have the plan sponsor or the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash, (B) under which a participant is treated as having elected to have the plan sponsor or the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage), and (C) under which the notice and election requirements of paragraph (3), and the investment requirements of paragraph (4), are satisfied. (3) Notice requirements (A) In general The plan sponsor of, or plan administrator or employer maintaining, an automatic contribution arrangement shall, within a reasonable period before the first day of each plan year, provide to each participant to whom the arrangement applies for such plan year notice of the participant’s rights and obligations under the arrangement which— (i) is sufficiently accurate and comprehensive to apprise the participant of such rights and obligations, and (ii) is written in a manner calculated to be understood by the average participant to whom the arrangement applies. (B) Election requirements A notice shall not be treated as meeting the requirements of subparagraph (A) with respect to a participant unless— (i) the notice includes an explanation of the participant’s right under the arrangement not to have elective contributions made on the participant’s behalf (or to elect to have such contributions made at a different percentage), (ii) the participant has a reasonable period of time, after receipt of the explanation described in clause (i) and before the first elective contribution is made, to make such election, and (iii) the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the participant. (4) Default investment If no affirmative investment election has been made with respect to any automatic contribution arrangement, contributions to such arrangement shall be invested in a default investment selected with the care, skill, prudence, and diligence that a prudent person selecting an investment option would use. (5) Effective date This subsection shall take effect on the date of the enactment of this Act. (d) Allow certain plan transfers and mergers (1) In general Section 414 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (z) Certain plan transfers and mergers (1) In general Under rules prescribed by the Secretary, except as provided in paragraph (2), no amount shall be includible in gross income by reason of— (A) a transfer of all or a portion of the accrued benefit of a participant or beneficiary, whether or not vested, from a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b) to an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches, (B) a transfer of all or a portion of the accrued benefit of a participant or beneficiary from an annuity contract described in section 403(b) to a church plan that is a plan described in section 401(a) or an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches, or (C) a merger of a church plan that is a plan described in section 401(a), or an annuity contract described in section 403(b) with an annuity contract described in section 403(b), if such plan and annuity contract are both maintained by the same church or convention or association of churches. (2) Limitation Paragraph (1) shall not apply to a transfer or merger unless the 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 such total accrued benefit is nonforfeitable after the transfer or merger. (3) Qualification A plan or annuity contract shall not fail to be considered to be described in sections 401(a) or 403(b) merely because such plan or annuity contract engages in a transfer or merger described in this subsection. (4) Definitions For purposes of this subsection: (A) Church or convention or association of churches The term church or convention or association of churches includes an organization described in subparagraph (A) or (B)(ii) of subsection (e)(3). (B) Annuity contract The term annuity contract includes a custodial account described in section 403(b)(7) and a retirement income account described in section 403(b)(9). (C) Accrued benefit The term accrued benefit means— (i) in the case of a defined benefit plan, the employee's accrued benefit determined under the plan, and (ii) in the case of a plan other than a defined benefit plan, the balance of the employee's account under the plan. . (2) Effective date The amendment made by this subsection shall apply to transfers or mergers occurring after the date of the enactment of this Act. (e) Investments by church plans in collective trusts (1) In general In the case of— (A) a church plan (as defined in section 414(e) of the Internal Revenue Code of 1986), including a plan described in section 401(a) of such Code and a retirement income account described in section 403(b)(9) of such Code, and (B) an organization described in section 414(e)(3)(A) of such Code the principal purpose or function of which is the administration of such a plan or account, the assets of such plan, account, or organization (including any assets otherwise permitted to be commingled for investment purposes with the assets of such a plan, account, or organization) may be invested in a group trust otherwise described in Internal Revenue Service Revenue Ruling 81–100 (as modified by Internal Revenue Service Revenue Rulings 2004–67, 2011–1, and 2014–24), or any subsequent revenue ruling that supersedes or modifies such revenue ruling, without adversely affecting the tax status of the group trust, such plan, account, or organization, or any other plan or trust that invests in the group trust. (2) Effective date This subsection shall apply to investments made after the date of the enactment of this Act.

Passed the Senate December 10, 2015. Secretary