• The Tax Reform Act of 1986 added section 89 to the Internal Revenue Code. Section 89 imposes comprehensive nondiscrimination rules for most employer-maintained “statutory benefit plans,” including group-term life insurance and accident or health insurance plans. These rules, which prohibit discrimination in favor of “highly-compensated employees,” are scheduled to go into effect on January 1, 1989 for most employers (January 1, 1990 for church plans). However, in September the Senate voted to amend section 89 (section 710 of the Senate Finance Committee Amendment to Senate Bill 2238). Under the Senate amendment, churches and some church-related organizations would be exempt from the section 89 nondiscrimination rules. It remains to be seen whether the House of Representatives will accept the Senate amendment. A recent editorial in the Wall Street Journal called section 89 “the most challenging welfare benefit legislation ever faced by most companies,” and compared it to “dropping an atomic bomb on a suspect anthill.” As originally enacted, section 89 does not apply to church plans until January 1, 1990. Unless Congress votes to remove churches from the reach of section 89, many churches will be adversely affected beginning in 1990. You will be apprised of any legislative developments with respect to this significant issue in future issues of Church Law & Tax Report.

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