Most Americans have watched their retirement plans suffer over the past two years. But the 500 members of the Augsburg Fortress pension plan have had it worse than most.

The publishing arm of the Evangelical Lutheran Church in America (ELCA) folded its plan in December, forcing beneficiaries to accept a significantly reduced income. The announcement, as well as similar ones from other church-affiliated organizations, has opened debate on how such pension plans are regulated.

As a church plan, Augsburg Fortress's is not insured by the federal agency that insures private pension plans. The 1974 pension law's exemption for churches has expanded to include church-affiliated nonprofits, such as hospitals, social service agencies, and publishers. Now the IRS is considering limits on such organizations' ability to convert to church plans.

The Augsburg Fortress case may intensify that consideration. Knowing the plan was underfunded, the publisher stopped enrolling new employees in 2005. But after the stock market collapse and a tough publishing climate, the plan was nearly empty and the publisher distributed the remaining funds. In response, beneficiaries sued.

As many as 86 organizations converted federally insured plans to church plans between 1997 and 2007, says Karen Ferguson, director of the Pension Rights Center. It is not known how many have failed since there is no central oversight. "The result has been devastating for employees," she says, "who will get a small fraction of the retirement benefits they earned."

But churches do not operate like corporations, says the Church Benefits Association, and regulating church plans could entangle the government in religious matters. Ira Lupu, a law professor at George Washington University, agrees. "In some affiliated organizations, like a seminary school or a Catholic order, a lot of employees have clergy responsibilities," Lupu says. However, he says, "The further you get away from what makes a religious institution distinct, the harder it is to justify the exemption being driven by the First Amendment."

Attorney Ron Kilgard, who represents the suing retirees, doesn't dispute the church exemption. But he says that if Augsburg Fortress is exempt because it is church affiliated, the church should fill the gap. "A church plan doesn't mean you can walk away from your obligations."

The ELCA, which seeks to dismiss the suit, says it "had no role in the creation, management, funding, or termination of the Augsburg Fortress pension plan."

Related Elsewhere:

Previous Christianity Today articles on Money & Business include:

Ayn Rand: Goddess of the Great Recession | Why Christians should be wary of the late pop philosopher and her disciples.(August 27, 2010)
Casting Too Wide a Net | Ministries protest proposed finance reform. (February 9, 2010)
Recession Hits Refugees | Nationwide job shortage pushes limits of resettlement system. (June 18, 2009)

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