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REGULATION/LEGISLATION

IRS grants church-plan status to St. Peter’s Healthcare System

IRS180x
IRS building, Washington

(updated with correction)

The IRS has granted church-plan status to the defined benefit pension plan of Saint Peter's Healthcare System, New Brunswick, N.J., exempting it from Employee Retirement Income Security Act rules on reporting, minimum contributions and paying premiums to the Pension Benefit Guaranty Corp.

The Internal Revenue Service revealed its decision in an Aug. 22 letter to plan participants, many of whom had contested granting the church-plan status, which the hospital first sought in 2006. IRS officials did not disclose the details of the decision.

The hospital system, formerly known as St. Peter's University Hospital, is also involved in a legal challenge over having church-plan status. While St. Peter's officials were not available to comment on the ruling, spokesman Philip Hartman said when the lawsuit was filed that the hospital considered it to be without merit.

The IRS ruling raises the prospect of more legal challenges to church-plan status rulings, said Karen Ferguson, director of the Pension Rights Center, who called the decision “deeply disappointing. It will now be for the courts and Congress to determine whether the IRS should be allowed to continue to allow retirement plans that have been ERISA plans for decades to convert to church-plan status solely for the purpose of saving millions of dollars at the expense of the retirement security of their current and former employees.”

Thomas E. Clark Jr., chief compliance officer and director of fiduciary oversight at FRA PlanTools, a fiduciary consulting firm, agreed.

“The real fight is going to be in the courts for those that believe the IRS has been getting this wrong for decades,” said Mr. Clark, a former ERISA litigator. “I wouldn't be surprised at all to see this issue eventually decided by the Supreme Court.”

In May, the IRS revoked the church-plan status of the now-closed Hospital Center at Orange, N.J., enabling the PBGC to cover the pension benefits for nearly 800 former employees. That reversal involved an unusual coalition of advocates from the Pension Rights Center, the PBGC, plan participants and their legal counsel.