February 21, 2012

Pension Changing to "church plan" Status Could Be a Sign Of Trouble

If your pension announces that it is officially seeking to be classified as a "church plan" then this could be a potential sign of trouble.   Particularly if the employing organization isn't really religious in nature.    This cautionary tale of the Health Center at Orange is such an example.  The failing pension tried to obtain church plan status out of the blue in an apparent attempt to dodge pension regulations. 

If you work for a organization that has religious affiliation then your pension may not have the protections of other pensions.   Pensions operated by religious groups can have a "church plan" status that exempts them from regulations for pensions.  The PBGC does not generally insure pension plans from church groups.   ERISA does not apply to church plans.     Normally for most private pensions the PBGC acts to provide insurance for pension plans in case they fail.    ERISA law also regulates pensions to make sure the pensions are Basically as far as I can tell theres really no laws or protections for pensions operated with "church plan" status.    What this could mean in the worst case is that if you retire and your pension fails completely and exhausts its trust fund then you could end up without any pension benefits.

A sudden change to "church plan" status might be a sign of trouble because the pension may want that status so it can avoid the rules and regulations that pensions normally have to follow.   I would be wary and critical of such a change in status particularly if your employer is having financial difficulties or if you know that the pension is seriously underfunded.

This is not to say that the church plan status isn't appropriate or that anything is necessarily amiss.   You may work for a church that is seeking church plan status as a matter of legal right.   Its also possible that there are reasons the church would want to avoid regulations that would actually benefit the plan financially which would then benefit you in turn.     Saint Peters University Hospital requested official 'church plan' status but they seem to be doing just fine.  They pay for PBGC insurance and are 90% funded and voluntarily follow most ERISA rules.  They claim they want church plan status only so they can spread out their pension payments rather than being required to make a lump sum.


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