Pension Advocates Raise Questions About IRS Rulings on Church Plan Status

In the months since the Internal Revenue Service lifted a moratorium in 2011 on issuing private letter rulings on church plans, IRS has issued at least 13 rulings granting church plan status, including one conferring church plan status on a defined benefit pension plan sponsored by a tax-exempt 501(c)(3) unincorporated religious organization that had been paying pension insurance premiums to the Pension Benefit Guaranty Corporation since Jan. 1, 1974, practitioners said in interviews with BNA in June and July.

IRS determined that the plans covered by those recent rulings met the definition under tax code Section 414(e)(3)(A) for “plans to be treated as church plans,” said Karen Ferguson, director of the Pension Rights Center in Washington.

Some plans treated as church plans may be facing legal challenges, however. Five recent complaints filed by plaintiffs seeking class actions to challenge the church plan status of underfunded pension plans maintained by church-affiliated hospitals and health systems could signal a new wave of class actions brought under the Employee Retirement Income Security Act, according to David E. Rogers, a partner at McDermott Will & Emery in Washington.

Ferguson said the language of ERISA and related tax code provisions makes clear that Congress provided ERISA protections for all private-sector workers, “with one narrow exception for church plans.” She added that “the legislative history makes plain that Congress enacted the church plan exemption only because it did not think that it was appropriate for a federal government agency, the Pension Benefit Guaranty Corporation, to examine a church's financial records.”

Others, however, have said that the statutory language defining a church plan under Section 414(e) is not black and white. “It's clearly a gray area,” said James J. Keightley, a partner at Keightley & Ashner in Washington. Congress always is “dancing a fine line” to avoid becoming involved in church matters, he said.

Excerpted from a story that ran in Pension & Benefits Daily (7/18/2013).