US & World

Church Workers' Pensions Lack Safeguards

Thousands of church-affiliated workers and retirees are at risk of losing funds they're counting on to see them through retirement, because of a little-known loophole in federal pension protections. The provision doesn't give them the same pension protections as private-sector workers.

When sex abuse lawsuits pushed the Catholic Diocese of Wilmington, Del., into bankruptcy, Maria Carpitella got some bad news. Through bankruptcy filings, she and other retirees and lay employees of the diocese learned their pension plan was severely underfunded and isn't protected like corporate pension plans.

Thousands of other church-affiliated workers and retirees are at risk of losing funds they're counting on to see them through retirement because of a little-known loophole in federal pension protections.

Carpitella spent most of her 20-year career working the front desk at a Catholic school for girls in Wilmington. "It was like 14- to 18-year-old girls, which can really be challenging," she says with a chuckle.

Carpitella enjoyed her work, and she knew when she retired that she would get monthly pension payments. "You trust on blind faith, the church will take care of you," she says.

But now Carpitella is beginning to wonder. Bankruptcy filings reveal the diocese has set aside less than 15 percent of the funds needed to meet its pension obligations. And now some of the pension funds are caught up in the bankruptcy.

Underfunding Problems

Officials from the diocese declined to comment for this story. But according to a letter that was posted on its website, the pension trust only has enough money to cover anticipated pension payments for the next six or seven years. Carpitella is worried her $400 a month will stop coming.

"It may not be a lot," she says. "And it might be such a little bit but it should be my little bit, and it may not be in a few years."

And if the diocese pension plan were to run out of funds, Carpitella and other retirees could be out of luck. That's because as a church pension plan, it isn't covered by the Pension Benefit Guaranty Corp., the government insurance plan for pensions.

"My husband's [pension] is guaranteed and it's insured, so I just presumed everybody's was," Carpitella says.

Her husband worked for TWA, and when the airline's pension was terminated in 2001, the PBGC stepped in to make monthly payments.

Compare that with what happened to 500 employees and retirees of the publishing house of the Evangelical Lutheran Church in America. When the Augsburg Fortress Publishers pension was terminated for lack of funds earlier this year, managers distributed the remaining money in lump sums based on years of service.

"It doesn't remotely come close to what they had expected to receive for their lifetime pension," says Richard Lockridge, a lawyer representing Augsburg pensioners in a federal lawsuit.

In a statement, Augsburg CEO Beth Lewis said the lawsuit is "wholly without merit." She also said the way the plan was wound down was the most fair and equitable option. Lockridge says his clients were counting on pension payments to see them through their retirement years.

"So these people understandably feel that they have been completely misled and are understandably extremely unhappy," Lockridge says.

Even though Augsburg Fortress Publishers is affiliated with the Lutheran Church, its pension plan was separate from the church's. The church declined to step in when the Augsburg pension fund ran into trouble. Still, Augsburg officials say the pension has operated as a so-called church plan for more than 30 years.

No Private Sector Protections

"It's just truly unfair," says Karen Ferguson, director of the Pension Rights Center in Washington, D.C. "[It's] fundamentally unfair that employees [who] happen to work for a publishing house or a hospital or a school that is in some way affiliated with a church have none of the critical pension protections that other private sector workers have. That's just wrong."

Church plans are exempt because that's the way churches wanted it.

Back in the 1970s and 1980s when this was being worked out, religious organizations that offered pensions took the position that they didn't need to be regulated. The groups had always done a good job of paying people what they were owed and they wanted to avoid the additional cost and burden of federal oversight.

Plus there was the issue of separation of church and state.

"There was a recognition that church plans had been doing this already ably and well for decades with this seminary-to-grave relationship, whereas with corporate plans there were many that were not," says Mike Downs, vice president of the Church Benefit Association, which represents plans that cover more than 600,000 employees and retirees.

Downs says plan failures like the one experienced by Augsburg Fortress are rare.

But since church plans aren't required to file disclosures about their financial standing, it's impossible to know how many others might be in trouble.

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