Faith-based organizations looking to offer retirement benefits to employees face decisions that secular employers do not, including whether their retirement plans are subject to ERISA. To aid the decision-making process, the Department of Labor (DOL) issued guidance in April titled Choosing a Retirement Plan for Your Small, Faith-Based Organization. Through the guidance and an accompanying blog post, the DOL discusses factors faith-based organizations may wish to consider when setting up a retirement plan.
What’s a Church Plan?
The IRS defines a “church” broadly to include many faith-based organizations, including mosques, synagogues, and other religious organizations with similar purposes. In some cases, “church plans” may also be sponsored by organizations that are not formal houses of worship but are affiliated with a convention or association of churches. However, not every organization connected to a church can sponsor a church plan.
Church plans, unlike their secular counterparts, are generally exempt from ERISA requirements and certain IRC provisions. However, they can voluntarily elect to be subject to ERISA and the IRC.
What Should Faith-based Organizations Consider?
In the blog post accompanying its new guidance, the DOL suggests faith-based organizations consider five key questions when setting up a retirement plan:
- What does the organization want for its employees, including who should be eligible, what benefits should they have, and whether the organization will contribute toward those benefits?
- What kind of plan best fits the organization’s needs?
- Is the organization eligible to sponsor a church plan?
- What legal or administrative issues could arise?
- Does the organization know where to get help in making these decisions and administering the plan?
Understanding Available Plan Types
The DOL notes that available plan options can include IRA-based plans, defined benefit plans, pooled employer plans (PEPs), or other defined contribution plans, like 401(k) and 403(b) plans.
According to the guidance, IRA-based plans, including SIMPLE plans, generally have lower start-up and annual costs, with less administrative paperwork required. Defined contribution plans, such as 401(k)s, allow for higher employee salary deferrals but typically require more work by the employer.
Pooled employer plans can offer small employers many of the benefits of a 401(k) plan with lower costs and administrative burdens. Defined benefit plans typically provide more stable benefits for employees, but they place investment risk on the employer and are often harder to administer.
The DOL’s guidance suggests faith-based sponsors take a strategic and informed approach when selecting a retirement plan. The decision, it notes, could have a significant impact on employees’ long-term financial security, on the organization’s employee value proposition, and on its ongoing administrative responsibilities.
Sources:
https://www.dol.gov/agencies/faith/retirement-plan