Does Your Organization’s Retirement Plan Need a Private Letter Ruling?
Since January 1, 1975 the federal government has safeguarded people who place their assets in 401(a) and 403(b) retirement plans.
These safeguards often come with extensive recordkeeping requirements that underfunded, understaffed churches and non-profit organizations may find themselves overburdened by.
One option available to both churches and non-profits is they may apply to the IRS for a letter ruling, exempting them from some regulations—and the associated rules to adhere to all the documentation and reporting obligations—found in the Employee Retirement Income Security Act of 1974 (ERISA).
Some quick background: both for-profit businesses and not-for-profit organizations are covered by ERISA, which regulates when employees must be allowed to participate, how long employees must work before their funds become vested (not forfeitable), when distributions can be made, whether or not a spouse is eligible to receive part of the pension in the event of an employee’s death, and many other issues.
Obtaining a ruling isn’t easy or cheap. It requires an application to the IRS, notification to all interested parties (participants, beneficiaries, alternate payees, and employee organizations), and a fee of up to $10,000. Organizations receiving a letter ruling are still subject to qualification requirements that predate the enactment of ERISA.
The benefit is your organization will have the security of knowing you’re in full compliance, with less long-term reporting requirements.
A church isn’t required to have a favorable letter ruling for its retirement plan, but getting one confirms the plan’s exempt status for tax purposes. Churches and their governing organizations may elect to be subject to ERISA regulations, but, once made, this election is irrevocable.
For help regarding this matter, contact one of our OSA&C professionals directly at (904) 398-4747. We’re here at Online Stewardship to help you guide your mission with a foundation of fiscal accountability.
