Issue Snapshot - Church Plans, Automatic Contribution Arrangements, and the Consolidated Appropriations Act, 2016

 

The automatic enrollment provision of the PATH Act supersedes any state law that restricts the ability of a church plan to have an automatic contribution arrangement.

IRC Sections and Treas. Regulations:

IRC 414(e) - Church Plans

IRC 410(d) - ERISA election

Resources (Court Cases, Chief Counsel Advice, Revenue Rulings, Internal Resources):

Consolidated Appropriations Act, 2016 (PATH Act is located at Division Q, Section. 336. Church Plan Clarification. on page 869) PDF 

Analysis:

Section 336(c) of the PATH Act, which became law on December 18, 2015, allows church plans (as defined in IRC 414(e)) to have an automatic contribution arrangement. Section 336(c) of the PATH Act supersedes any state law relating to wage, salary or payroll payment, collection, deduction, garnishment, assignment, or withholding that restricts the ability of a church plan to have an automatic enrollment feature.

The automatic enrollment provisions of the Pension Protection Act of 2006, which preempted state law, only applied to ERISA plans. Church plans are not subject to the Employee Retirement Income Security Act of 1974 (ERISA) requirements unless the church plan elects to be subject to ERISA. IRC 410(d) permits church plans to make an irrevocable election to be covered by ERISA (and certain IRC) requirements.

Many non-electing church plans have been unable to adopt an  automatic contribution arrangement because of state payroll deduction laws that are designed to protect employee wages from unauthorized employer deductions and/or access by creditors. This PATH Act provision generally equalizes the availability of the automatic enrollment feature for church and conventional private-sector retirement plans by preempting state laws that directly or indirectly restrict automatic contribution arrangements for church retirement plans.

Issue Indicators or Audit Tips:

The effective date of section 336(c) of the PATH Act is the enactment date (12/18/2015).