New Notice Requirements for Qualified Plans Seeking IRS Approval of Church Plan Status

Todd Solomon
October 13, 2011 — 2,338 views  
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On September 23rd, the Internal Revenue Service (the “IRS”) released Rev. Proc. 2011-44, which modifies the procedures for submitting a private letter ruling request that a plan constitutes a church plan. In connection with such ruling requests, Rev. Proc. 2011-44 adds a notice requirement and requires that an applicant represent whether the plan is a church plan that has opted out of ERISA coverage. The revenue procedure applies to both ruling requests received after September 26th, 2011 and ruling requests pending with the IRS as of September 26th, 2011.

New Church Plan Notice Requirement

Letter ruling applicants are now required to provide notice to “interested persons” that a letter ruling under Code Section 414(e) on behalf of a church plan will be or was submitted to the IRS. In addition, a copy of the notice must be submitted to the IRS as part of the ruling request. An “interested person” includes each plan participant, beneficiary, QDRO alternate payee, and any employee organization representing employees who are plan participants.

Contents of Church Plan Notice

At a minimum, the notice must contain the information included in the Model Notice (which was an appendix to the revenue procedure). For church plans that have opted out of ERISA, the notice contains specific information that will inform the plan participants that the plan is not protected by ERISA's statutory protections, eligibility and vesting rules, minimum funding requirements, etc. Any information contained in the Model Notice that is not applicable to the particular plan should be deleted. For example, if the plan is not a defined benefit plan, the Model Notice should be revised to delete references to insurance protection provided by the Pension Benefit Guaranty Corporation. If the applicant chooses to post the notice on a bulletin board (an option that is described below), the Model Notice must be revised to state that any interested person may request and receive, free of charge, a paper copy of the notice. Applicants may include additional information not provided in the Model Notice, so long as the information is necessary and helpful to interested persons and is not misleading, misinforming, or distracting.

Timing and Method for Providing the Notice

A request for a letter ruling filed with the IRS on or after September 26th, 2011 must include a copy of the notice along with a statement that the notice was provided to interested persons. The statement must specify the date that the notice was provided, which must be within 30 days prior to the date that the letter ruling request was submitted to the IRS.

An applicant whose letter ruling request is pending with the IRS on September 26th, 2011 must submit a copy of the notice to the IRS and a cover letter containing a statement that references the pending request and specifies the date that the notice was provided to interested persons. The notice must be provided no later than Friday, November 25th, 2011. If the notice is not provided by that date, the IRS may consider the ruling request withdrawn without refund of the applicant’s user fee. If an applicant chooses not to provide the required notice, the IRS will not rule on the applicant's pending request. In such case, the applicant must notify the IRS by November 25, 2011 in order to receive a refund of its ruling request user fee.

The revenue procedure provides that if an applicant makes a reasonable effort to satisfy the notice rules, the failure to provide one or more interested persons with the required notice will not cause the applicant to fail the notice requirement. Further, posting the notice on a bulletin board is not sufficient to meet the notice requirements, unless the notice is prominently displayed on a bulletin board at a principal place of employment, the bulletin board is regularly and actively used for a wide variety of purposes by employees who are plan participants, and the notice is provided to all other interested persons by other methods that constitute a reasonable effort to satisfy the notice requirement.

Next Steps

Plan sponsors with church plan ruling requests pending before the IRS should consider providing the required participant notice as soon as possible, but in no event later than November 25. The IRS has informally indicated that sponsors who provide the notice quickly and notify the IRS accordingly may speed up the time before which the IRS rules on the sponsor's request. Any additions a sponsor wishes to make to the IRS model notice should be closely examined to ensure they do not mislead plan participants or distract from the message of the notice.

Todd Solomon

McDermott Will & Emery LLP

Todd A. Solomon is a partner in the law firm of McDermott Will & Emery LLP based in the Firmís Chicago office. As a member of the Employee Benefits Department, Toddís practice is concentrated primarily on designing, amending, and administering pension plans, profit sharing plans, 401(k) plans, employee stock ownership plans, 403(b) plans, and nonqualified deferred compensation arrangements. He also counsels privately and publicly-held corporations and tax-exempt entities regarding fiduciary issues under ERISA, employee benefits issues involved in corporate transactions, executive compensation matters, and the implementation of benefit programs for domestic partners of employees. A portion of his practice consists of advising clients on fiduciary and plan investment matters. Todd has experience counseling plan fiduciaries with respect to investment policies, alternative investments (e.g., hedge funds, limited partnerships, real estate), prohibited transaction issues, investment management agreements, and payment of expenses from plan assets.