WASHINGTON — After a 10-year struggle, hundreds of former workers and retirees from the Hospital Center at Orange (HCO) once again have federal protections for their pensions. In an unprecedented move, the Internal Revenue Service (IRS) has reversed its 2003 decision to grant HCO’s pension plan recognition as a “church plan.” The IRS’ action paves the way for the Pension Benefit Guaranty Corporation (PBGC) to restore insurance protections to the HCO plan.
For decades, the Hospital Center at Orange was an independent nonprofit hospital, not affiliated with any religious organization. Its pension plan was covered by the Employee Retirement Income Security Act (ERISA), the federal law that governs and insures most private pension plans, requiring them to follow certain funding rules and pay insurance premiums to the PBGC.
In 1998, the hospital entered into a financial arrangement with Cathedral Health Systems and, four years later, based on this affiliation, applied to the IRS for a ruling that its pension plan was a “church plan” exempt from ERISA. The IRS granted HCO’s request for church plan status in early 2003. It was only later that year that HCO employees learned that their pensions would no longer be protected by the PBGC, and that their underfunded plan only had enough money to pay retirement benefits for a few years. The Hospital shut down the following year.
Since 2003, HCO retirees and former employees, led by Mary Rich and Mary Petti (both nurses and former HCO vice presidents) have been working in the courts, in Congress, and in the media to persuade the IRS to withdraw the ruling.
“This victory was long-overdue,” said Karen Ferguson, director of the Pension Rights Center, which has provided legal and strategic support for their efforts. “The agencies’ actions have come just in time. The plan would have run out of money to pay benefits by the end of this year.”
“Federal rules provide that once a plan is an ERISA plan it cannot thereafter become a church plan,” said Ferguson. “The IRS should have never granted the HCO plan church plan status in the first place, and we are relieved that the agency has rescinded its decision.”
The IRS decision does not address the situations faced by tens of thousands of other participants in pension plans established by hospitals, social services agencies, and other nonprofit organizations that, like the HCO plan, were always covered by ERISA but, unlike HCO, have always been affiliated with religious organizations.
“These employers are now seeking church plan rulings to avoid the requirements of federal laws, as a way of saving money at the expense of their retirees’ retirement security.” Ferguson said. “Those situations present separate legal issues. The Pension Rights Center will continue to work with affected workers and retirees to ensure that their pensions are protected.”
For more information on the church plan issue, check out our church plan fact sheets.