New IRS regulations about 403(b) retirement plans for your church staff!

ll nonprofits, including churches and religious organizations—such as schools, colleges, and seminaries—need to vastly change the way they operate their 403(b) retirement plans, also known as tax sheltered annuities or tax deferred annuities.

I distinctly remember my first day at the Internal Revenue Service—of being part of a group of newly hired revenue agents, fresh out of college, naïve and nervous on day one of our first real job, and at the intimidating Federal Building no less.

The district director unashamedly stated that among federal agencies, the IRS was second to none, including the FBI. The director told how the FBI came to the IRS, frustrated that they could not convict Al Capone, and that the IRS took on the task and did convict Capone on tax evasion charges. The rest is history.

No other agency can instill fear in the hearts of American citizens, including those who have done nothing wrong, as the IRS can. And rightfully so, since it has tremendous powers, including the ability to assess taxes, impose penalties, seize funds, sell assets, place liens on property, and the like. The agents in the criminal division carry guns, perform raids, and possess powers similar to those of law enforcement.

So how does this relate to the new regulations for 403(b) retirement plans affecting churches and religious organizations? Welcome to the 21st century, a time when growing government deficits can be fed only by more and more tax revenues, even at the expense of the exempt organizations that perform many of the services the government would need to provide if nonprofits didn’t exist. In the past, nonprofits and churches enjoyed many exclusions from the onerous burdens of tax minutia, but those privileges are quickly diminishing or have disappeared. All nonprofits, including churches and religious organizationssuch as schools, colleges, and seminaries—need to vastly change the way they operate their 403(b) retirement plans, also known as tax sheltered annuities or tax deferred annuities.

The fast-approaching deadline for making these changes is Dec. 31, 2009. Failure to adhere to these complex rules may result in severe tax implications plus penalties and interest, particularly to the plan participants, that is, your employees. Therefore, not protecting your employees’ retirement assets from the coffers of the IRS could create serious liability issues for your ministry.

Synopsis of new regulations

Master Plan Document and Adoption Agreement

The most glaring change from the past is that a Master Plan Document will be required for the first time. This legal document, along with its counterpart, the Adoption Agreement, forms the legal basis for the existence of your ministry’s retirement plan. Without it, effective Dec. 31, according to the IRS, a plan does not exist and will result in what is called plan failure. Plan failure causes all plan assets to become immediately taxable and subject to penalties and interest.

Universal Availability Requirements

Under the new regulations, 403(b) plans must now meet “universal availability” requirements that govern your employees’ eligibility for participation in the plan. There are three components:

1. Eligibility—In essence, if any employees are eligible to make their own contributions (salary reductions) to your 403(b) plan, then all employees must be allowed to participate, with limited exceptions.

2. Employee notification—The employer must notify employees of the eligibility requirements at least annually and in a manner that ensures delivery of the notification to all employees.

3. Enrollment opportunity—Employees must have the opportunity to enroll in the plan at least once annually.

Failure to meet the universal availability requirements may also result in immediate plan failure.

Information Sharing Agreement

An Information Sharing Agreement will be needed with each investment provider (vendor) to guarantee the sharing of relevant information to achieve compliance with the new regulations. This is critical if multiple vendors are permitted, and it is the primary reason only one vendor is recommended due to the new regulations.

Allocation of plan responsibilities

One of the purposes of the IRS’s regulations is to spell out the allocation of plan responsibilities among the employer, the issuer of the contract (i.e., the investment company), and any other involved parties, such as a third party administrator.

The new regulations allow those responsibilities to be allocated to any specific party (employer, investment company, third party administrator, other professionals), but these responsibilities cannot be allocated to employees.

Keep your church’s or nonprofit organization’s retirement plan from failing by contacting a tax professional. See the sidebar for one possible source of assistance.

A certified public accountant, Nick Yzzi is the director of consulting at the Summit Christian Leadership Center of Lansdale, Pa., a ministry of Calvary Baptist Theological Seminary. He has been associated with this ministry for over 20 years and was previously the director of finance and administration with Calvary Baptist Church of Lansdale, Pa. He started his career with the Internal Revenue Service in Philadelphia as a revenue agent and later moved to the tax department of a regional CPA firm before entering ministry.

Summit Center retirement plan package

To alleviate the dilemma of finding an appropriate retirement plan package to comply with the new IRS regulations at a reasonable cost, the Summit Christian Leadership Center of Lansdale, Pa., has worked with a major Philadelphia law firm to create its own documents.

The cost of the Summit Center retirement plan package is only $499. The master plan document was created by Fox, Rothschild LLP, Attorneys at Law. The firm has 14 offices nationwide, including Philadelphia, New York, and Los Angeles.


Master Plan Document

Adoption Agreement

Universal Availability Annual Notice


The Summit Center retirement plan package allows you to choose whichever options you desire:

Employer contributions only

Employee contributions only (also called elective deferrals or salary reductions)

Both employee and employer contributions

Roth contributions by the employee

Ministerial Housing Allowance Exclusion under IRS Code Section 107 for retirement plan distributions to clergy


As part of the purchase price of the Summit Center retirement plan package, we will provide telephone or e-mail assistance with your 403(b) plan decisions and referrals for investment providers and administrators (TPA).

IRS approval

The Summit Center retirement plan will apply for formal approval by the IRS when it starts its program in 2010. Upon its approval as a “Prototype Plan,” purchasers of the Summit Center retirement plan package will be eligible to “ride along” and receive the automatic approval (after the Summit Center Document is approved by the IRS) for a nominal charge.

The Summit retirement plan package will include all that you need to comply with the new IRS regulations and avoid plan failure and the inadvertent taxation, penalties, and interest.

For more detailed information on the new regulations information, go to, or call 215-368-4444 and ask for Ron Clark or Nick Yzzi.