David Cay Johnston: District Court Rebukes IRS Church Plan Rulings

The IRS Office of Chief Counsel came in for sharp criticism from a federal judge in the first significant decision in five lawsuits by workers who complain that the IRS is helping employers quietly strip away their pension rights.
 
Hundreds of thousands of workers at hospitals and other nonprofit organizations have been moved into so-called church pension plans, which are exempt from ERISA. IRS private letter rulings enabled each of these moves.
 
Most of the nonprofits that were granted IRS approval to operate as church plans exempt from ERISA were seriously under funded, the trustees having failed to set aside enough money to pay the old-age benefits workers had earned. The federal government guarantees the pensions of workers in ERISA plans, although when a plan fails, workers typically get less than they had been promised. Workers moved into church plans, however, lose the federal guarantee.