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Question 25 — Nondiscrimination Rules and Church Plans

Q. Can a school that is affiliated with a church use a 401(k) plan, and be a non-electing church? Or is that option only available with a 403(b)?

A. ERISA Section 3(33) provides that a non-electing church — which would include the schools the church controls and operates — is exempt from ERISA coverage for 401(k) plans (and 401(a) and 403(b) plans) as well. However, it is important to note that the nondiscrimination rules for employer contributions made by the church’s school do not apply to 403(b) plans (there is a waiver under Internal Revenue Code Section 403(b)(12)(B); however, there is no such waiver applying to 401(k) plans). Thus, nondiscrimination rules for employer contributions would apply to 401(k) plans, but not to 403(b) plans.

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