Church Plan Crisis Looming

It could be another trillion dollars in unfunded Defined Benefit pensions either picked up by taxpayers or defaulted upon. Fox Rorthschild’s newsletter For Your Benefit presents the situation in an article on page 4:

In early December, the United States Supreme Court announced that it will hear three consolidated cases to decide whether pension plans established by religiously-affiliated employers are entitled to the same treatment as plans established by churches. All three cases involve defined benefit pension plans maintained by church-affiliated healthcare systems; in each case, lower courts have ruled that the plans are not exempt from ERISA and must comply with all plan qualification requirements.
Three years ago, participants, concerned about their benefits (and knowing that PBGC guarantees will not be available), began to file lawsuits claiming that the plans maintained by their religiously-affiliated employers should not be church plans and should not be exempt from ERISA. The Supreme Court agreed to hear these cases because the appellate courts in the Third, Seventh and Ninth Circuits have ruled in favor of the plaintiff employees, while district courts in other circuits have taken the contrary position.
A decision that plans maintained by religiously-affiliated employers are not church plans reportedly could affect millions of employees across the country and trigger pension funding liabilities in the billions of dollars.

Today we got:

Text of Amicus Brief of U.S. to Supreme Court on Definition of Church Plan (PDF)
U.S. Department of Labor [DOL]; Pension Benefit Guaranty Corporation [PBGC]; U.S. Department of the Treasury; and U.S. Department of Justice

Why are these government agencies so anxious to keep these ‘church’ plans exempt from ERISA?

Because they might be the worst funded Defined Benefit plans in the country and, unlike government or union plans which have some value assigned to liabilities in either a CAFR or 5500 filing, the only place these church plan liabilities appear is in Schedule D, Part X of the sponsor’s 990 form.

Without any funding requirement many of these plans may already be in pay-as-you-go mode with massive unfunded liabilities that would stretch the resources of government agencies that could be charged with overseeing their solvency. Hence, the reason for punting.

The three church plans involved in this Supreme Court case, with links to their latest 990 filings including the page with pension obligations, are:

Were these church plans to suddenly become subject to ERISA funding rules and PBGC coverage (with those outlandish premium payments) the choice, especially in a volatile insurance marketplace, could be clear cut:

  1. Stop funding the plans.
  2. Let PBGC take over.
  3. Get those massive pension liabilities off your books.

Will this happen? It’s a coin flip as the facts of the case are open to interpretation/speculation.  According to the government’s brief (page 3) the reason for the exemption is dubious:

ERISA generally applies to any benefit plan “established or maintained” by a private employer. But Congress exempted “church plans,” in part because “the examination s of books and records” required under ERISA “might be regarded as an unjustified invasion of the confidential relationship that is believed to be appropriate with regard to churches and their religious activities.”

with the main point of contention (page 13) being:

The only question before the Court is whether an otherwise-qualifying plan maintained by a principal-purpose organization must be “established” by a church in the first instance. As the agencies responsible for administering ERISA have concluded for more than three decades, the answer to that question is no.

But if the Supreme Court decides* that answer is ‘yes’ then the agencies responsible for administering ERISA will have to deal immediately with liabilities of an indeterminate amount that have been escalating without independent oversight for more than three decades.




* Oral arguments scheduled for March.

26 responses to this post.

  1. Posted by Anonymous on January 31, 2017 at 6:51 am

    Ruling would be a slam dunk high if the NJSC heard the case OR the soon to be Trumputin’s SCOTUS!


    • Posted by Anonymous on January 31, 2017 at 6:53 am

      Hit post prematurely; it’s clear based on our POTUS’s actions the law of our land is and will continue to be irrelevant. He can ram it down us for maybe four years…..


  2. Posted by Anonymous on January 31, 2017 at 7:08 am

    Any idea what the funding ratio is for all of the various Federal pension plans including Military?


    • USA Today 5 years ago put the unfunded liabilities for federal retirement programs at $5.7 trillion:

      and it appears to be all pay-as-you-go.


      • Posted by Anonymous on January 31, 2017 at 9:45 am

        Thanks really appreciate the info! Wonder how it changes the conversation for any receipents of those Federal taxpayer funded pension? Especially some posters here….. Maybe Trump should look to cut them to as part of his Federal budget/deficit plan??


        • Posted by Anonymous on January 31, 2017 at 9:57 am

          Continuation: Or better yet don’t reinvent the wheel, NJ’s got a solution eliminate taxpayer funded COLAs and healthcare. I know, I can hear them now; the old self interest exceptions! Then still don’t make employer contributions so we can be like our overseers ‘pay as you go’!


      • Posted by Anonymous on January 31, 2017 at 10:55 am

        John trying to take this a step further:

        So $5.7T five years ago and today? For lack of better comparison what was the approximate combined State & Local unfunded pension obligation five years ago?

        I’m assuming the $5.7T doesn’t include Federal retiree healthcare, possibly COLA?

        Thanks again!


        • $5.7 trillion probably included health care but values applied to pay-go arrangement are always arbitrary. In theory there should be no interest factor since there are no earnings but they probably use 4% or 5% for their values.

          With local and state plans there is also the issue of how many there really are.With no standardized reporting there may be trillions more in liabilities out there uncounted.


          • Posted by Anonymous on January 31, 2017 at 1:10 pm

            Thanks again for your candid, honest reply.

            It’s impossible to know or measure the unknown even on the Fed side when it comes to enrollees and retirees, especially health care costs which in NJ’s case far exceeds the unfunded pension amount.

            Any real conversation has to be based on known quantifiable facts. As more information comes to light the conversation may change.

            Again, appreciate the info!


      • Posted by S Moderation Douglas on January 31, 2017 at 12:01 pm

        I ran across this a while back. Apparently, since 1984, military pensions are theoretically on an accrual funding method. But, like SS, they only invest in government securities, so…


      • Posted by NY on January 31, 2017 at 3:00 pm

        John: The Fed Reserve seems to show the Fed Govt’s unfunded pension liabilty as $1.9T (see table “L.119.b” on p.98 here:

        Do you know how this # can be reconciled with the USA-Today #?


        • Posted by Anonymous on January 31, 2017 at 3:15 pm

          Yeah probly the same unstandardized reporting used at the State and Local levels!


        • Posted by Anonymous on January 31, 2017 at 3:21 pm

          Yeah probly the same unstandardized reporting used at the State and Local levels! Guess the Feds payed down over 4T of their unfunded while keeping pace with additional accrued liabilities – LOL!


        • Posted by Anonymous on January 31, 2017 at 3:31 pm

          NY couldn’t locate #s based on your reference but even if it’s there then we’d (to compare apples to apples source data) have to rely on, in this case, the numbers reported by Div of Pensions and/or Investments for NJ?


          • Posted by NY on January 31, 2017 at 3:55 pm

            Are you able to access the PDF using that web link? If so, search inside the PDF for the text “FL343073045” (this is the code for this item)


          • Posted by Anonymous on January 31, 2017 at 5:59 pm

            Found it, thanks. Not being the expert but knowing how John always, apparently with good reason, questions the numbers publisher by the providers of DBP. I’d say we’d need to know annual payouts and contributions into the DBP systems to see what the burn rate is. Seems too much of gap between the two numbers unless the difference could be COLAs and health care?


  3. Posted by Anonymous on January 31, 2017 at 11:46 am

    I’m sure this comment will ensure responses but interesting up untill now all quiet on the Western Front!


  4. Posted by Anonymous on January 31, 2017 at 8:46 pm

    Let’s not lose sight of the fact that, regardless of the Feds ability to print money, unfunded Federal P&B equals or exceeds ALL State and Local governments P&B. Promised and earned yes, deservant a topic of debate.


  5. Posted by George on February 1, 2017 at 12:27 pm

    Retired NJ cop moves to Pennsylvania and becomes city administrator of town with failing pension scheme. Karma?

    “As a retired police officer and municipal administrator, the new head of City Hall draws a public pension himself from the state of New Jersey. ”

    “It’s a nationwide problem,” Liston said.

    Liston: Monetize assets to boost pensions


    • Posted by Anonymous on February 1, 2017 at 6:03 pm

      For the State & Locals it’s tax and spend, as for the Feds it’s print and spend………Same thing with slightly different results!


  6. […] Church plans moving to pay-as-you-go when assets run out […]


  7. […] there are many more church plans out there who would have major issues with ERISA coverage (as would the IRS and PBGC). Following are some excerpts from the arguments […]


  8. […] what I have seen church plans, which have very limited reporting requirements now for their accrued pension expenses (basically a […]


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