SECURE Act: Church-Controlled Organizations: Clarification of Retirement Income Account Rules Under the Secure Act

Section 111 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act clarifies who may be covered under retirement plans that are maintained by church-controlled organizations. But what exactly is a “church-controlled organization?”

According to the IRS, church-controlled organizations can be considered either qualified or nonqualified. A qualified church-controlled organization (QCCO) is also considered to be a church-controlled 501(c)(3) tax-exempt organization, and typically does not offer any type of services or goods for sale to the public. They have less than 25% of all financial support coming from government grants or from goods and services that derive from business activity. Examples of QCCOs are seminaries, General Assembly agencies and entities, churches, and church-related primary and secondary schools.

A nonqualified church-controlled organization (NQCCO) refers to a tax-exempt organization that offers goods, services and facilities for sale. They’ll normally have more than 25% of all revenue coming from government sources or the sale of goods or services. Examples of NQCCOs are church-affiliated hospitals, universities, children’s homes and retirement housing facilities.

Before the enactment of the SECURE Act, the IRS opined that certain NQCCOs – including church-related nursing homes, daycare centers, summer camps, preschools, colleges, universities, hospitals and other social service organizations – shouldn’t sponsor church retirement income plans under Section 403(b)(9) of the Internal Revenue Code. As a result, employees of these NQCCOs stood to lose access to such plans.

The SECURE Act clarifies who may be covered under plans maintained by church-controlled organizations. It includes the following:

• Duly ordained, commissioned or licensed ministers, regardless of the source of compensation;
• Employees of tax-exempt organizations controlled by or associated with a church or a convention or association of churches; and
• Certain employees who separate from service with a church, a convention or association of churches or an organization described above.

Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.