FOR IMMEDIATE RELEASE
August 3, 2006
CONTACT: Jamie Loftus
SENATOR HUTCHISON LEGISLATION TO ESTABLISH PARITY FOR CHURCH PENSION
BENEFICIARIES APPROVED BY CONGRESS
Legislation extends Internal Revenue Code exemptions to church plans
WASHINGTON, DC -- Legislation introduced by Senator Kay Bailey Hutchison (R-TX), Vice Chairman of the Senate Republican Conference, to eliminate inequitable tax treatment of church pension plans was approved today by Congress as part of the Pension Protection Act of 2006. The legislation extends to churches the same exemptions currently applied to government and multiemployer plans and will now be sent to the president to be signed into law.
“The church pension reforms I introduced are simple and fair. They extend important exemptions to church pension plans just as they are provided to other government and private plans,” Sen. Hutchison said. “Church pensions provide critical support to over a million clergy members across the country. Many of them have dedicated their careers to serve in economically disadvantaged communities. They should not be punished for devoting their lives to serve those most in need.”
Sen. Hutchison’s legislation includes two changes to provisions of the Internal Revenue Code that negatively impact church plans while exempting other equally important plans. The first provision extends the waiver of pension compensation limits to participants in church plans. The second provision extends the exemption from unrelated business income taxes on pension investments to church pensions.
Currently, one section of the Code (Section 415 (b)(1)(B)) limits benefits for retired church employees to 100 percent of the participant’s average compensation for their highest paid three years. This limitation penalizes church employees because some church plans allow employees who earn significantly low salaries to accrue benefits based on the average salaries of their coworkers, rather than their own, lower compensation. The IRS Code allows exemptions to this general limitation for government and multiemployer plans but the exemption is not extended to church plans.
In addition, the Code requires church plans to pay unrelated business income taxes on investments in leveraged real estate while exempting the vast majority of retirement plans from this very same tax.
Many pastors and lay staff workers serve small or economically disadvantaged congregations. Ministers often live in parsonages throughout their career and are faced with acquiring housing for the first time when they retire. Church pension plans are designed to give all employees adequate retirement income. Sen. Hutchison’s bill makes commonsense changes to ensure these plans are treated fairly.
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