Loophole Puts Pension Plans at Risk

Jewish Groups Use Exemptions for Churches to Skirt Rules

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By Nathan Guttman

Published February 13, 2012, issue of February 17, 2012.
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Seeking to cut pension costs, Jewish social service groups are using an obscure tax loophole to skirt federal rules that protect workers from being left out in the cold if their retirement plans collapse.

Jewish organizations, including federations and hospitals, have filed for the special “church status” that strips workers and retirees of legal protections and allows groups to drop insurance that would cover shortfalls in their pension plans.

Federal tax experts say the status is supposed to be for houses of worship and clergy-run religious groups, yet groups that are not clearly religious in nature have been approved, and more are eager to qualify.

“Once you get a church status, workers will no longer have the protection all other private pension plans have,” said Eric Loi, an attorney who works at the Pension Rights Center, a Washington-based organization.

Among the Jewish groups that have already won the special status are the federations of Philadelphia, Detroit, Cleveland and Baltimore. Old-age homes and hospitals in Connecticut and in Baltimore, as well as the American Jewish Joint Distribution Committee, have also qualified.

Those groups all obtained the status several years ago, often with little or no publicity, even though the changes can dramatically affect workers’ retirement security. Last year, the Internal Revenue Service issued new guidelines ordering groups to inform employees about the proposed changes and to allow their input.

The latest major group to push for the controversial change is United Jewish Communities of MetroWest New Jersey, one of the nation’s largest federations.

On January 11, UJC MetroWest told current and former employees that “because of extraordinary financial pressure,” the federation has turned to the Internal Revenue Service and asked that its pension program be recognized as a church plan.

“To qualify for this special plan exception,” the letter reads, the federation will have to demonstrate to the IRS that its pension plan is “established and maintained by a religious organization.”

If the request is approved, the New Jersey federation’s pension plan will not have to abide by rules set in the Employee Retirement Income Security Act of 1974.

The most significant exemption is from the need to insure the plan in the Pension Benefit Guaranty Corporation. It’s a costly requirement for pension funds, but one that ensures employees get at least part of their money in case the pension plan goes broke. Church plans are also exempt from many of the reporting and transparency requirements put in place to inform workers of how their retirement money is managed.

Officials at UJC MetroWest assured 1,144 participants in their pension fund that the group will continue to run the plan “in a responsible way” regardless of the change in status.


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