U.S. workers fight loophole switch to uninsured church pension plans
Mary Rich worked for a hospital in northern New Jersey for 25 years, first as a registered nurse and later as an executive. One of the job’s benefits was a traditional pension that she expected to receive at retirement. Now that benefit seems unlikely to be around by the time she retires.
Rich’s financially troubled former employer, the Hospital Center at Orange (HCO), shut down in 2004. The pension plan currently has $5.25 million in assets, which are being distributed at the rate of $2.7 million per year. By the time Rich reaches retirement 12 years from now, the money will be gone.
Under normal conditions, a pension plan such as HCO’s would have been back-stopped by the Pension Benefit Guarantee Corporation, the federally sponsored agency that insures most private sector pension plans. When plans go belly up, PBGC takes them over and continues to make payments; most participants receive 100 percent of promised benefits. But HCO’s case wasn’t typical. A year before it closed, HCO had declared itself to be a “church plan” – meaning that it was claiming an exemption to federal pension law and PBGC coverage.
The Employee Retirement Income Security Act, known as ERISA, regulates most private-sector pensions. But it has always exempted plans operated directly by churches for their clergy and employees to make it easier for the churches to operate their plans.
A 1980 amendment to ERISA clarified that the exemption also applied to church pension boards, which administer group pension plans for church employees. But since then, a growing number of plan sponsors with less-direct ties to religious organizations have been declaring themselves church plans and asking the Internal Revenue Service to issue private-letter rulings confirming the exemptions, which free the plans from federal funding requirements.
They can stop paying PBGC insurance premiums and can even receive a refund of up to six years of insurance premiums – probably a total of about $200,000 in HCO’s case. While that may have been a lot of money for a struggling hospital to recoup, it’s a disaster for workers relying on the pension plan, and it’s especially egregious considering that the cost of lifetime protection from PBGC is just $35 per year per plan participant.