IRS Updates Guidance on Automatic Contributions in Church Plans

The IRS has updated the information on its site to reflect the protection the Protecting Americans from Tax Hikes Act (PATH) of 2015 affords the ability of a church plan to have an automatic contribution arrangement.

The PATH Act expanded the portability of retirement assets by permitting taxpayers to roll over assets, including from a 457(b) plan into a SIMPLE IRA plan. The IRS notes that this law and provision supersede any state law that restricts the ability of a church plan to have an automatic contribution arrangement.

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 ERISA requirements unless the church plan elects to be subject to ERISA, which they may do under Code Section 410(d).

The IRS notes that many nonelecting church plans had 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. 

Section 336(c) of the PATH Act, however, allows church plans under Code 414(e) to have an automatic contribution arrangement. Section 336(c) 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.

This PATH Act provision, the IRS says, 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.