[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[S. 3532 Introduced in Senate (IS)]

112th CONGRESS
  2d Session
                                S. 3532

To amend the Internal Revenue Code of 1986 to clarify the treatment of 
             church pension plans, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 12, 2012

 Mrs. Hutchison (for herself and Mr. Cardin) introduced the following 
  bill; which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to clarify the treatment of 
             church pension plans, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Church Plan Clarification Act of 
2012''.

SEC. 2. CHURCH PLAN CLARIFICATION.

    (a) Application of Controlled Group Rules to Church Plans.--
            (1) In general.--Section 414(c) of the Internal Revenue 
        Code of 1986 is amended--
                    (A) by striking ``For purposes'' and inserting the 
                following:
            ``(1) In general.--For purposes'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Church plans.--
                    ``(A) General rule.--Except as provided in 
                subparagraphs (B) and (C), for purposes of this 
                subsection and subsection (m), an organization that is 
                otherwise eligible to participate in a church plan as 
                defined in subsection (e) shall not be aggregated with 
                another such organization and treated as a single 
                employer with such other organization unless--
                            ``(i) one such organization provides 
                        directly or indirectly at least 80 percent of 
                        the operating funds for the other organization 
                        during the preceding tax year of the recipient 
                        organization, and
                            ``(ii) there is a degree of common 
                        management or supervision between the 
                        organizations.
                For purposes of this subparagraph, a degree of common 
                management or supervision exists only if the 
                organization providing the operating funds is directly 
                involved in the day-to-day operations of the other 
                organization.
                    ``(B) Nonqualified church-controlled 
                organizations.--Notwithstanding the provisions of 
                subparagraph (A), for purposes of this subsection and 
                subsection (m), an organization that is a nonqualified 
                church-controlled organization shall be aggregated with 
                one or more other nonqualified church-controlled 
                organizations, or with an organization that is not 
                exempt from tax under section 501, and treated as a 
                single employer with such other organizations, if at 
                least 80 percent of the directors or trustees of such 
                organizations are either representatives of, or 
                directly or indirectly controlled by, the first 
                organization. For purposes of this subparagraph, a 
                `nonqualified church controlled organization' shall 
                mean a church-controlled organization described in 
                section 501(c)(3) that is not a qualified church-
                controlled organization described in section 
                3121(w)(3)(B).
                    ``(C) Permissive aggregation among church-related 
                organizations.--Organizations described in subparagraph 
                (A) may elect to be treated as under common control for 
                purposes of this subsection. Such election shall be 
                made by the church or convention or association of 
                churches with which such organizations are associated 
                within the meaning of subsection (e)(3)(D), or by an 
                organization determined by such church or convention or 
                association of churches to be the appropriate 
                organization for making such election.
                    ``(D) Permissive disaggregation of church-related 
                organizations.--For purposes of subparagraph (A), in 
                the case of a church plan (as defined in subsection 
                (e)), any employer may permissively disaggregate those 
                entities that are not churches (as defined in section 
                403(b)(12)(B)) separately from those entities that are 
                churches, even if such entities maintain separate 
                church plans.
                    ``(E) Anti-abuse rule.--For purposes of 
                subparagraphs (A) and (B), the anti-abuse rule in 
                Treasury Regulation section 1.414(c)-5(f) shall 
                apply.''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning before, on, or after the 
        date of the enactment of this Act.
    (b) Application of Contribution and Funding Limitations to 403(b) 
Grandfathered Defined Benefit Plans.--
            (1) In general.--Section 251(e)(5) of the Tax Equity and 
        Fiscal Responsibility Act of 1982 (Public Law 97-248), is 
        amended--
                    (A) by striking ``403(b)(2)'' and inserting 
                ``403(b)'', and
                    (B) by inserting before the period at the end the 
                following: ``, and shall be subject to the applicable 
                limitations of section 415(b) of such Code as if it 
                were a defined benefit plan under section 401(a) of 
                such Code and not the limitations of section 415(c) of 
                such Code (relating to limitation for defined 
                contribution plans).''.
            (2) Effective date.--The amendments made by this subsection 
        shall apply as if included in the enactment of the Tax Equity 
        and Fiscal Responsibility Act of 1982.
    (c) Automatic Enrollment by Church Plans.--
            (1) In general.--This subsection shall supersede any law of 
        a State which would directly or indirectly prohibit or restrict 
        the inclusion in any church plan (as defined in this 
        subsection) of an automatic contribution arrangement.
            (2) Definition of automatic contribution arrangement.--For 
        purposes of this subsection, the term ``automatic contribution 
        arrangement'' means an arrangement--
                    (A) under which a participant may elect to have the 
                plan sponsor make payments as contributions under the 
                plan on behalf of the participant, or to the 
                participant directly in cash, and
                    (B) under which a participant is treated as having 
                elected to have the plan sponsor make such 
                contributions in an amount equal to a uniform 
                percentage of compensation provided under the plan 
                until the participant specifically elects not to have 
                such contributions made (or specifically elects to have 
                such contributions made at a different percentage).
            (3) Notice requirements.--
                    (A) In general.--The plan administrator of an 
                automatic contribution arrangement shall, within a 
                reasonable period before such plan year, provide to 
                each participant to whom the arrangement applies for 
                such plan year notice of the participant's rights and 
                obligations under the arrangement which--
                            (i) is sufficiently accurate and 
                        comprehensive to apprise the participant of 
                        such rights and obligations, and
                            (ii) is written in a manner calculated to 
                        be understood by the average participant to 
                        whom the arrangement applies.
                    (B) Election requirements.--A notice shall not be 
                treated as meeting the requirements of subparagraph (A) 
                with respect to a participant unless--
                            (i) the notice includes an explanation of 
                        the participant's right under the arrangement 
                        not to have elective contributions made on the 
                        participant's behalf (or to elect to have such 
                        contributions made at a different percentage),
                            (ii) the participant has a reasonable 
                        period of time, after receipt of the notice 
                        described in clause (i) and before the first 
                        elective contribution is made, to make such 
                        election, and
                            (iii) the notice explains how contributions 
                        made under the arrangement will be invested in 
                        the absence of any investment election by the 
                        participant.
            (4) Effective date.--This subsection shall take effect on 
        the date of the enactment of this Act.
    (d) Allow Certain Plan Transfers and Mergers.--
            (1) In general.--Section 414 of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        subsection:
    ``(z) Certain Plan Transfers and Mergers.--
            ``(1) In general.--Under rules prescribed by the Secretary, 
        except as provided in paragraph (2), no amount shall be 
        includible in gross income by reason of--
                    ``(A) a transfer of all or a portion of the account 
                balance of a participant or beneficiary, whether or not 
                vested, from a plan described in section 401(a) or an 
                annuity contract described in section 403(b), which is 
                a church plan described in subsection (e) to an annuity 
                contract described in section 403(b), if such plan and 
                annuity contract are both maintained by the same church 
                or convention or association of churches,
                    ``(B) a transfer of all or a portion of the account 
                balance of a participant or beneficiary, whether or not 
                vested, from an annuity contract described in section 
                403(b) to a plan described in section 401(a) or an 
                annuity contract described in section 403(b), which is 
                a church plan described in subsection (e), if such plan 
                and annuity contract are both maintained by the same 
                church or convention or association of churches, or
                    ``(C) a merger of a plan described in section 
                401(a), or an annuity contract described in section 
                403(b), which is a church plan described in subsection 
                (e) with an annuity contract described in section 
                403(b), if such plan and annuity contract are both 
                maintained by the same church or convention or 
                association of churches.
            ``(2) Limitation.--Paragraph (1) shall not apply to a 
        transfer or merger unless the participant's or beneficiary's 
        benefit immediately after the transfer or merger is equal to or 
        greater than the participant's or beneficiary's benefit 
        immediately before the transfer or merger.
            ``(3) Qualification.--A plan or annuity contract shall not 
        fail to be considered to be described in sections 401(a) or 
        403(b) merely because such plan or account engages in a 
        transfer or merger described in this subsection.
            ``(4) Definitions.--For purposes of this subsection:
                    ``(A) Church.--The term `church' includes an 
                organization described in subparagraph (A) or (B)(ii) 
                of subsection (e)(3).
                    ``(B) Annuity contract.--The term `annuity 
                contract' includes a custodial account described in 
                section 403(b)(7) and a retirement income account 
                described in section 403(b)(9).''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to transfers or mergers occurring after the date of 
        the enactment of this Act.
    (e) Investments by Church Plans in Collective Trusts.--
            (1) In general.--In the case of--
                    (A) a church plan (as defined in section 414(e) of 
                the Internal Revenue Code of 1986), including a plan 
                described in section 401(a) of such Code and a 
                retirement income account described in section 
                403(b)(9) of such Code, and
                    (B) an organization described in section 
                414(e)(3)(A) of such Code the principal purpose or 
                function of which is the administration of such a plan 
                or account,
        the assets of such plan, account, or organization (including 
        any assets otherwise permitted to be commingled for investment 
        purposes with the assets of such a plan, account, or 
        organization) may be invested in a group trust otherwise 
        described in Internal Revenue Service Revenue Ruling 81-100 (as 
        modified by Internal Revenue Service Revenue Rulings 2004-67 
        and 2011-1), or any subsequent revenue ruling that supersedes 
        or modifies such revenue ruling, without adversely affecting 
        the tax status of the group trust, such plan, account, or 
        organization, or any other plan or trust that invests in the 
        group trust.
            (2) Effective date.--This subsection shall apply to 
        investments made after the date of the enactment of this Act.
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