Joint, bipartisan legislation has been introduced in the U.S. House of Representatives and Senate that would clarify regulatory restrictions on so-called church plan status defined benefit and defined contribution plans.

Read: First settlement reached in church plan suit

The Church Plan Clarification Act of 2015 would allow not-for-profit religious organizations, which do not fall under the jurisdiction of the Employee Retirement Income Security Act, the ability to automatically enroll participants.

Under existing law, states may prohibit some church plans from doing so.

Sponsored by Sen. Rob Portman, R-Ohio and Sen. Ben Cardin, D-Maryland, and Rep. Pat Tiberi, R-Ohio, and Rep. Richard Neal, D-Massachusetts, the legislation would give sponsors of church plans greater latitude in transferring 401(k) plan assets to the pooled assets of 403(b) plans.

As is, a specific church in one denomination may sponsor its own qualified church 401(k) plan. But lack of clear guidance may prohibit those sponsors from merging assets to the 403(b) church plan if that plan proves to be a better option for participants.

In allowing mergers of assets, sponsors and participants could benefit from decreased administrative costs, according to a statement released jointly by the lawmakers.

The law would also clarify how grandfathered defined benefit church plans, which are 403(b) church plans started before 1982, comply with benefit accrual limits under the tax code.

By clarifying that those plans benefit from defined benefit accrual limits, and not defined contribution accrual limits, lower-paid clergy members would be afforded greater retirement benefits, the lawmakers said in a statement.

It would also clarify controlled group rules, which for non-profits, currently say tax-exempt organizations are considered to be under common control if 80 percent of the directors and trustees of one 501(c)(3) are also in control of another entity.

As proposed, the new legislation would modify existing controlled group rules to ensure that “multiple church-affiliated entities—which may be related theologically, but have little or no relation to one another in terms of day-to-day operation—are not inappropriately treated as a single employer under the tax code,” according to language in a press release.

And church plans would have the option of polling retirement plan assets with other church assets, and investing the pooled assets in collective trusts, or so-called 81-100 trusts.

Currently, comingling plan assets with other church assets in a collective trust investment is prohibited.

“Unintended consequences created by our overly complex tax code could impact the retirement security of more than one million clergy and lay workers at faith institutions across the country,” said Rep. Tiberi in a statement.

“This bill would correct these inequalities to ensure that those who spend their lives working in the name of their faiths have the same retirement security as their private-sector counterparts,” he added.

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Legislation would give church DB and DC plans more flexibility

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