U.S. funding law victory for churches, affiliated employers, ministers, and employees

December 23, 2019

The Church Alliance worked to persuade legislators to address three issues that could have negatively affected ministries and church workers.

Important protections for retirement and health benefits plans operated by churches, religious institutions, and affiliated organizations were included in the federal spending packages signed into law Friday, December 20. This victory follows several years of work by the Church Alliance to repeal unfair taxes and retain the eligibility of thousands of people for 403(b)(9) savings plans.

“This is the biggest advocacy accomplishment for us ever,” said the Reverend Frank Clark Spencer, President of the Board of Pensions and a member of the Steering Committee of the Church Alliance. The Alliance, a coalition representing 38 denominational benefits organizations, persuaded legislators to address three issues poised to negatively affect ministries and church workers. “All three are significant for our members, congregations, and affiliated employers,” President Spencer said.

One is the repeal of the parking lot tax, included in the tax reform law that took effect January 1, 2018. It required churches and other nonprofits to pay unrelated business income tax (UBIT) on transportation subsidies given to employees, including the parking spaces. The tax and its onerous reporting requirements raised much confusion, and churches have been relieved of payment and filing provisions.

Also gone is the Cadillac tax, included in the Affordable Care Act and set to take effect in 2022. The 40 percent tax would have been imposed on healthcare coverage exceeding certain government-imposed thresholds. Although Cadillac suggests otherwise, this tax would have applied to many modest plans covering church workers and their families.

Finally, the funding measure clarifies participation in church retirement plans offered under section 403(b)(9) of the tax code, such as the Retirement Savings Plan of the Presbyterian Church (U.S.A.). A recent IRS position had threatened to eliminate the 403(b)(9) eligibility of many church-affiliated nursing homes, daycares, camps, and colleges and universities. That threat has been removed.

“Many of our plan members may not even be aware that these issues were looming over us,” President Spencer said. “But the Board of Pensions has been working closely with our partners in the Church Alliance to correct them before their impact could be felt. We’re thrilled with the outcome.”