Pension problem at ELCA's publishing arm exposes loophole

The Evangelical Lutheran Church in America's publishing house is telling retirees and workers that it is shutting down its pension because of stock market losses and a business downturn, and it could leave scores of retirees without a regular income as of April.

The crisis at Augsburg Fortress is exposing an obscure loophole in federal pension law and the financial stress religious institutions have been under during the economic downturn. Fifty years ago, Joyce Ostrem graduated from college and went looking to do the Lord's work.

"I considered myself a Christian, and I wanted to, you know, serve the church in some way," Ostem said.

The clergy wasn't really an option for a woman at the time, so Ostrem got a job at Augsburg Fortress, the Minneapolis-based publishing arm of the Evangelical Lutheran Church in America. It prints and distributes everything from church bulletins to packages of authentic palm ash.

Ostrem worked at Augsburg Fortress for 45 years, mostly as a billing clerk. She retired five years ago, and has been living in Richfield, on Social Security and a pension from the publisher.

"It was really a wonderful organization for a lot of years," she said.

But on New Year's Eve, she got devastating news. Augsburg Fortress's pension fund owed more than the company could pay -- and maybe even more than the publisher was worth. Augsburg Fortress plans to shut the pension down and dole out what's left this spring. Ostrem and about 500 people are affected.

"It was really a wonderful organization for a lot of years."

"I'll have to wait and see what this lump sum is," Ostrem said. "To see how they calculate that and we're not going to find that out until the end of January. So, just wait and see. And cry a lot. I have been crying a lot since New Year's Eve."

And with good reason; Augsburg Fortress said it figures it has about $24 million in pension obligations for its defined benefit plan, and it has only about $8 million in the bank. The pension's stock market investments started a swoon nine years ago, when the dot-com bubble burst.

Augsburg Fortress CEO Beth Lewis said the decline has grown steeper during the recession.

"We've been talking about it as a perfect storm -- the dramatic decline in the equity markets, and then the other issues are the actuarial factors," Lewis said. "The low discount rates and then the changes in the tables that actuaries use as Americans live longer."

Of course, that isn't news to many American workers. Defined pension plans like the one at Lewis's company have been failing all over the country.

But there's a twist in this case.

The federal Employee Retirement Income Security Act, passed in 1974, has a special exception for churches and their affiliates. That means they don't have to comply with many pension regulations -- but they're also not covered by the Pension Benefit Guarantee Corporation, the federal pension insurance program.

Augsburg Fortress's religious affiliation is written right into the ELCA's constitution, which means there's no safety net for the publisher's pension plan.

Jim Keightley, a former general counsel for the federal pension guarantee program, founded his own Washington D.C. law firm to handle pension disputes. He said the economy and an aging workforce have left a number of religious institutions struggling to cope with their long-term obligations to clergy and lay staff.

"Pensions are a labor cost, which you'll find in organizations that are in trouble, whether it's in airlines or the steel industry or the textile industry, they look to eliminate this labor cost if they can," Keightley said. "I think some traditional churches have found decreasing participation and funding, so in a way, they're similar to a declining industry."

But workers say Augsburg Fortress wasn't just a factory churning out sedans. They say they thought the relationship between them and their employer wasn't just financial.

Beth Wright, a former book editor at Augsburg Fortress who's now in business for herself is helping organize pension beneficiaries and former employees.

"They saw the publishing house as supporting the church in its mission, so in other words, they believed in the core Lutheran values," Wright said. "They were supporting the idea of Jesus as the savior of humankind, they were supporting Martin Luther's principals of the priesthood of all believers. They really believed they were there for a higher purpose."

But the ELCA declined a plea to bail out the pension. The church itself announced in September that it was slashing some of its own retirement benefits by 9 percent a year for the next three years.

A church spokesman said Tuesday that the 4.5 million member ELCA had decided it had no legal obligation to the Augsburg Fortress retirees.