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In Unusual Move, IRS Reverses 'Church Plan' Pension Decision

Good news for 700 former hospital employees months before plan runs out of funds.

Approximately 700 former employees of a Catholic-affiliated hospital in New Jersey will continue to receive pension funds, thanks to an unprecedented decision by the Internal Revenue Service (IRS) this week.

The IRS decided to reverse a 2003 decision that exempted the Hospital Center at Orange from federal pension plan benefits because it was a church-affiliated nonprofit before it shut down in 2004. According to the New York Times, "That decision took away the former employees' government safety net because the Constitution's church-state separation was said to bar the federal pension insurance program from covering church pensions."

As a result of the IRS's reversal, former employees of the hospital now will receive federal pension benefits once again.

The Employee Retirement Income Security Act of 1974 (ERISA), a federal pension law, originally exempted only churches, but later was expanded to include church-affiliated nonprofits like hospitals and publishers. As a result, some employers have worked around ERISA's complexities by seeking "church plans" that allow the employers to save money.

Pension-rights supporters won a crucial victory in 2011 when the IRS announced that employers using "church plans" as a money-saving measure would be required to "notify participants in those plans that, as a church plan, their plan would not be protected by ERISA."

CT has previously reported on church pension tensions. The publishing arm of the Evangelical Lutheran Church in America (ELCA) folded its plan in 2010, and the pension issue later resurfaced within the denomination itself in 2011.

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