Plan would provide fixed amount of income at retirement April 16, 2004
A UMNS Report
By John Lovelace*
The
following is based largely on an executive summary prepared by staff of
the United Methodist Board of Pension and Health Benefits.
Two
terms are basic to understanding current United Methodist pension plans
and what is proposed for change at the 2004 General Conference.
A
“defined benefit plan” provides a promised and secure amount of income
at retirement based on a formula that usually considers years of service
and either a percentage of pay or a dollar amount. The plan sponsor —
usually the annual (regional) conference — funds the plan. All financial
risk or gain rests with the sponsor.
A “defined contribution
plan” promises an annual contribution, usually a percentage of pay,
which the plan sponsor deposits into an individual’s account with the
board, and that is invested, usually at the individual’s choice. All
financial risk or gain rests with the participant.
As explained
in the executive summary, pension plans for service before 1982, known
collectively as “pre-82,” are based principally on a defined benefit.
Yet while it was designed like a defined benefit plan, the pre-82
program was funded like a defined contribution plan, according to the
summary. These rely on funding by annual conferences, and benefits based
on average clergy compensation vary from one conference to another,
since each conference sets its own service-year rate.
The
Ministerial Pension Plan, adopted in 1982, is principally a defined
contribution plan, many of whose investors benefited appreciably from
unprecedented market returns during the 1980s and ’90s.
The proposed new Clergy Retirement Security Program provides both a defined benefit plan and a defined contribution plan.
“The
objective of the CRSP plan is threefold,” said Woody Bedell, chief
strategic relations officer for the board in Evanston, Ill. It is
designed “to provide security or a defined stream of income at
retirement that is secure”; to provide flexibility for participants by
giving them investment options and a cash distribution at retirement;
and to reflect better stewardship for the annual conferences and plan
participants.
The
defined benefit plan provides a benefit equal to 1.25 percent of
denominational average compensation times years of service after Jan. 1,
2007. The plan is funded collectively by the conferences and does not
establish individual account balances.
The defined contribution
plan provides for an annual contribution equal to 3 percent of salary
plus housing, to be invested in a fund of the participant’s choice.
The
proposed plan differs from its two predecessors in at least one other
way. Both the pre-82 plan and the Ministerial Pension Plan assume full
ministerial careers of 40 years; the proposed plan assumes 30 years as
more typical. A board spokesperson said the shorter career is based on
increasing numbers of second-career people entering the ministry,
increasing the average seminary-enrollment age to about 35.
*Lovelace
is a writer and editor in Dallas. He has covered eight United Methodist
General Conferences. News media can contact Tim Tanton at (615)742-5470
Nashville, Tenn. or newsdesk@umcom.org.
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