Disagreement Voiced on IRS Church Plan Ruling

August 28, 2013 (PLANSPONSOR.com) – The Pension Rights Center expressed disagreement with a recent ruling by the Internal Revenue Service (IRS) about a “church plan” designation.

According to the center, employees and retirees of Saint Peter’s University Hospital in New Brunswick, New Jersey, were notified that the IRS had issued a private letter ruling (PLR) that their pension plan had been designated as a church plan. The center expressed concern that, because of this ruling, the plan would no longer be protected by the Employee Retirement Income Security Act (ERISA) or backed by the Pension Benefit Guaranty Corporation (PBGC). They also expressed concern that, since the plan is underfunded, the ruling may affect the retirement security of the participants.

The center is working with participants and retirees from Saint Peter’s and other religiously-affiliated employers to challenge efforts to change their ERISA plans to church plans. In the case of Saint Peter’s, the hospital’s owners had requested the change in designation.

According to Karen Ferguson, director of the Pension Rights Center, “We are deeply disappointed that the IRS appears to have issued a church plan ruling to Saint Peter’s Healthcare System (formerly Saint Peter’s University Hospital). The ruling is particularly disappointing since many of Saint Peter’s participants had filed comments documenting that their pension plan has been an ERISA plan since January 1, 1974, and had specifically requested the opportunity to participate in the decisionmaking procedure by making oral presentations at an IRS meeting, as contemplated by Revenue Procedure 2011-44. No meeting was ever held.”

Ferguson said that the PLR was issued by the IRS while litigation was, and is, still pending that challenges Saint Peter’s contention that it is a church plan.

She added that because the IRS has not released the PLR to the public, this makes it “impossible for the participants or their advocates to challenge the assertions made by Saint Peter’s in its ruling request or the rationale provided by the IRS.”

Ferguson said that if the IRS’ rationale is similar to the recently issued PLR 201333024, issued to a religiously-affiliated university for its defined contribution (DC) plan, it will reflect “a longstanding misreading of the law by the agency.”

“It will now be for the courts and Congress to determine whether the IRS should be allowed to continue to allow retirement plans that have been ERISA plans for decades to convert to church plan status solely for the purpose of saving money at the expense of the retirement security of their current and former employees,” concluded Ferguson.

A copy of the letter Saint Peter’s participants received can be found here. Background information on the Saint Peter’s pension plan can be found here. A copy of PLR 201333024 can be found here.