The Wall Street Journal said the IRS is developing revenue procedures to address concerns about plans converting to church plan status including whether employees know their employers dropped their pension insurance. The news account pointed out that church plans are exempt from federal pension rules, including those that require employers to fund the plans and insure them with the Pension Benefit Guaranty Corp. (PBGC).
The Employee Retirement Income Security Act (ERISA) exempted pensions set up by churches for their clergy and employees while a technical amendment in 1980 broadened the exemption to include pensions of employers “associated” with a church. The IRS later began to allow pensions of nonchurch employers to be treated as church plans if they added a few individuals associated with a religious organization to the benefits committees.
The issue is of special concern when a church plan sponsor decides to terminate the plan. For example, recently Augsburg Fortress, a publisher in Minneapolis that sells books published for the Evangelical Lutheran Church in America, terminated its plan, which was 36%-funded (see Law Firms File ERISA Class Action Against Lutheran Publishers). With no protection, employees lost 30% to 60% of their benefits, according to the Journal.