Loophole Puts Pension Plans at Risk

Jewish Groups Use Exemptions for Churches to Skirt Rules

istockphoto.com

By Nathan Guttman

Published February 13, 2012, issue of February 17, 2012.
  • Print
  • Share Share
  • Multi Page

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.

Howard Rabner, the federation’s chief operating officer and chief financial officer, told the Forward that he expects the change to “have no impact on the pension benefits” of retirees and employees. Rabner added that obtaining an exemption from ERISA requirements would “provide critical flexibility to fund the pension plan while continuing to provide our mission-based programming locally, in Israel and overseas.”

Not all participants in the UJC MetroWest plan feel at ease. At least one wrote a letter to the IRS, arguing that the federation is not a religious organization but rather a provider of social services. In the letter, the participant, who asked not to be named, explained that the federation does not employ clergy, has no religious school and does not conduct worship services.

William Josephson, expert on not-for-profit law and former head of the New York State Attorney General’s Charities Bureau, agreed.

“They’re not a church,” he stated, quoting the legal requirements for obtaining a “church plan” status. “How are they going to bypass that?”

Rabner said he believed that UJC MetroWest fit the description of a religious group because other federations had qualified.

In another recent case involving a Jewish organization, workers succeeded in derailing a plan to achieve church status recognition. Employees of the Jewish Community Center of Greater Washington pushed back against their employer’s intention to ask for the religious exemption. After writing board members and consulting with experts, they managed to convince the JCC to withdraw the request.

History has shown that workers have good reason to be concerned. Losing federal protection can present a real risk for those counting on their pensions to provide for their retirement years.

In 2003, the Hospital Center at Orange, located in Orange, N.J., received a “church plan” status for its pension program. The hospital shut down the following year, and only then did employees learn that their pension program was underfunded and would soon be depleted. Since the hospital was exempt from buying into the PBGC insurance, workers have no way to retrieve their pensions.

In another case, the Roman Catholic Diocese of Wilmington, Del., went bankrupt, leaving behind an underfunded pension plan. Since it was a church plan, participants did not have access to information about the dire situation of their retirement program.

So far, there are no similar horror stories at Jewish federations or other groups that obtained the special status. The JDC insisted that it applied for the status to free up cash for programs because its pension was significantly overfunded.

“The plan was fully funded under (government) rules and remains fully funded today under the same rules,” JDC spokesman Michael Geller said.

An official with the Associated Jewish Federation of Baltimore said the question of its church plan status is no longer relevant since the federation closed its pension plan and switched to a 401(k) program several years ago.

A spokesman for the IRS did not respond to inquires regarding exemptions for Jewish organizations’ pension plans.

Contact Nathan Guttman at guttman@forward.com


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • Can you relate?
  • The Forverts' "Bintel Brief" advice column ran for more than 65 years. Now it's getting a second life — as a cartoon.
  • Half of this Hillel's members believe Jesus was the Messiah.
  • Vinyl isn't just for hipsters and hippies. Israeli photographer Eilan Paz documents the most astonishing record collections from around the world:http://jd.fo/g3IyM
  • Could Spider-Man be Jewish? Andrew Garfield thinks so.
  • Most tasteless video ever? A new video shows Jesus Christ dying at Auschwitz.
  • "It’s the smell that hits me first — musty, almost sweet, emanating from the green felt that cradles each piece of silver cutlery in its own place." Only one week left to submit! Tell us the story of your family's Jewish heirloom.
  • Mazel tov to Chelsea Clinton and Marc Mezvinsky!
  • If it's true, it's pretty terrifying news.
  • “My mom went to cook at the White House and all I got was this tiny piece of leftover raspberry ganache."
  • Planning on catching "Fading Gigolo" this weekend? Read our review.
  • A new initiative will spend $300 million a year towards strengthening Israel's relationship with the Diaspora. http://jd.fo/q3Iaj Is this money spent wisely?
  • Lusia Horowitz left pre-state Israel to fight fascism in Spain — and wound up being captured by the Nazis and sent to die at Auschwitz. Share her remarkable story — told in her letters.
  • Vered Guttman doesn't usually get nervous about cooking for 20 people, even for Passover. But last night was a bit different. She was cooking for the Obamas at the White House Seder.
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.