A “colossal blunder” repeated by the IRS for decades could cause millions of hospital and school employees to lose out on pension money, Professor Norman Stein told reporters covering a case before the U.S. Supreme Court.
On March 27, the Supreme Court heard arguments in a case involving hundreds of thousands of hospital workers whose pension plans face funding shortfalls because their employers have claimed a religious exemption from federal pension law.
“It’s pretty clear that these plans that are established by hospitals or nursing homes are not true church plans,” Stein said during an interview March 27 on NPR’s The Takeaway. “They’re not really supposed to be exempt from regulation.”
The Employee Retirement Security Act enacted in the 1970s made churches exempt from regulations, Stein explained.
“The government didn’t want a true church to have to open its books,” Stein explained. “It was also a feeling that ‘a true church probably is not going to let a pension plan fail. It’s not a business, it’s going to keep its promises to its employees.’”
But over time, hospitals, health care networks and schools cited affiliations with churches to avoid regulations designed to ensure that pension plans would provide for retirees.
While some plans are well-funded, Stein added, it’s clear that some church-affiliated hospital plans are in serious trouble and unclear how many plans may face shortfalls over the coming decades.
For more than 30 years, the IRS had issued determination letters allowing hospitals to treat their pension plans as ERISA-exempt church plans, Bloomberg BNA reported on March 25.
“The IRS, without much thought or research or care, leaped into a colossal blunder when it first came up with this position, but, unfortunately, agencies don’t relish admitting colossal blunders,” Stein said in the Bloomberg article.
Now some pension plans associated with church-affiliated hospitals and schools are sending letters to retirees saying that their pension payments will be cut or even eliminated because of funding shortfalls, Stein said on NPR.
The Supreme Court will have to decide whether an exempt church plan must be established by a church or by another entity that shares similar beliefs with the church, Stein said.