Agency proposes new plan for clergy pensions

April 16, 2004

A UMNS Report
By John A. Lovelace*

UMNS photo by Mike DuBose Barbara Boigegrain, top staff executive of the United Methodist Church�s Board of Pension and Health Benefits

Starting Jan. 1, 2007, United Methodist clergy could have their first new pension plan in 25 years. Delegates to the church’s top lawmaking assembly will find that the plan is among the lengthiest pieces of legislation, and it is not without opposition.

The proposal comes from the United Methodist Board of Pension and Health Benefits, which has described the plan as aligning “the denomination with the best practices of major corporations” by combining the characteristics of a defined benefit and a defined contribution plan.

It’s not easy to change or replace multilayered programs that affect tens of thousands of people who have billions of dollars accumulating on their behalf. The church’s Book of Discipline expends about 12,000 words in an overview of the Board of Pension and Health Benefits and its authority, obligations and programs.

Details of the new plan, with accompanying proposed legislative changes, constitute one of the largest masses of reading material in the hands of the General Conference’s 998 voting delegates, who will meet April 27-May 7 in Pittsburgh.

The proposal goes first to the General Conference’s 95-member Committee on Financial Administration, which can recommend that the plan be adopted, amended, rejected or referred for further study.

One member of that committee is Scott Smith, chief executive officer of Medical City Dallas Hospital, with 2,600 employees. This is his seventh consecutive General Conference as a lay delegate from the North Texas Annual Conference.

“The business world,” Smith said, “has learned to hire managers of 401(k) plans and give them authority to automatically and instantaneously move investments in individual plans, according to the risk level the individual participant has indicated willingness to tolerate. Our employees have been screaming for something like this.”

However, Smith said many constituents are dissatisfied with the plan, and he predicted it would probably be referred for four more years’ study.

Woody Bedell, chief strategic relations officer for the board, said he doesn’t see the situation as one of dissatisfaction with the plan but lack of understanding. Board employees have met with 61 of the U.S. delegations to General Conference, and Bedell described the feedback as positive, though he also noted that “there’s a tremendous learning curve” for the church.

“Just looking at the numbers, the majority of the participants will do better under the proposed plan,” he said. Any participant who is 50 and has been in the Ministerial Pension Plan would have to earn a little bit more than 12 percent annually to do better than the proposed new plan at retirement, he said.

Online tour

The Pension and Health Benefits board has gone to some lengths to explain the proposed changes. Its Web site, at www.gbophb.org, offers an audio-assisted guided tour of the proposed legislation requiring two kinds of computer software for full access. To personalize the explanations where it counts most — among elected delegates to General Conference — board staff have visited all but a handful of the church’s 63 regional annual conferences.

On the board’s online tour of the proposed legislation, top staff executive Barbara Boigegrain explained the need for the changes. “We need to expand access, manage costs and improve long-term security so we can continue to provide protection and support to all in ministry.”

Modern technology notwithstanding, history is a factor in the complexity, too. The board administers at least nine pension, relief or benefit programs created before 1981 in either the United Methodist Church or its two predecessor denominations, the Methodist Church and the Evangelical United Brethren Church, which united in 1968. Some retirees today benefit from both the current plan, known as the Ministerial Pension Plan, established in 1982, and from one or more of the prior plans. The latter are referred to collectively as “pre-82.”

Impact on older retirees

One who personifies the feeling of perceived inequities toward pre-82 retirees is retired Bishop William B. Lewis of Edwardsville, Ill. Though the bishop, with 46 years in the active ministry, commends the way the proposed plan balances values of a defined benefit and defined contribution, he said it has “very disturbing implications for retirees with significant numbers of service years prior to 1982.”

Bedell, however, said participants in the pre-82 plan receive increases at the same rate as the average increase of cash compensation for active clergy, which is more than the Consumer Price Index. “When you take those increases into effect, the pre-82 plan has done a wonderful job of being able to provide appropriate benefits to the majority of pre-82 retirees,” he said. “There are no pension plans that I know of that increase at (the rate of) what I call ‘active salary increases.’”

Under the new plan, the increases would be pegged closer to the Consumer Price Index – about 2 percent – and annual conferences would have the option of adding to that amount.

In November, the Council of Bishops asked the Board of Pension and Health Benefits “to review the equity between benefits provided” under older plans and the proposed new defined benefit plan. Board staff prepared a 13-page executive summary as part of that review and recommended no change in the new plan.

Lewis took his concerns directly to the board at its Nov. 21 meeting. He drew particular attention to the “unfairness” of the proposed 1.25 percent defined benefit for retirees after Jan. 1, 2007, compared with current church law mandating 0.8 percent and recommending 1 percent annuity rates for pre-82 retirees.

Actuarial gains and earnings have enabled many annual conferences to overfund their pre-82 accounts, according to Lewis. He estimated this overage for the denomination as a whole at $200 million. While the use of excess funds from one benefit plan, the pre-82 coverage, to help pay for another benefit plan may be legal, Lewis said, he has questions about the morality of the practice.

“We would like to see the 1.25 benchmark in the new legislation recommended for pre-82 retirees also,” he told the board. He described this as a “friendly amendment” to the proposal.

The board staff supported no adjustment to the current rate of 1 percent. The staff estimated the cost for all 63 U.S. annual conferences to reach the 1.25 percent level in 2004 at “just over $430 million.”

“On average, the benefits for clergy who retired in 1982 have increased to reflect the cost-of-living adjustments as measured by the Consumer Price Index, plus an additional 35 to 40 percent,” according to the executive summary.

People who retired in 1982, in general, have received replacement income that exceeds the objectives of both the Ministerial Pension Plan and the proposed new plan, the Clergy Retirement Security Program, according to Bedell. “Conferences can be assured that they’ve provided adequate benefits to the pre-82 group and must focus attention on other issues, such as retiree medical benefits, which affect all retirees — including the pre-82 group.”

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