Annuity changes affect lay, clergy differently
3/20/2003 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.
NOTE: This report is a sidebar to UMNS story #155.
By United Methodist News ServiceChanges in the United Methodist Church's annuity policy will affect lay and clergy retirees in different ways.
church's Board of Pension and Health Benefits says that effective July
2, account balances in its retirement plans will receive a floating
market-based rate when converted to annuities. The floating market rate
will replace an 8 percent fixed rate that the board currently applies to
account balances that are "annuitized."
That step is necessary,
the board believes, because current market rates are in the 5 to 6
percent range. As a result, the agency is paying above-market rates on
annuities, and the extra money is coming out of its reserves.
the clergy retirement plan has a mandatory annuity, clergy who are at
least 62 years old or with 35 years of service have been "grandfathered"
in at the old rate. In other words, they will be able to continue
working without losing the 8 percent rate on pre-July contributions.
Contributions made to the Ministerial Pension Plan after July 2 will
receive the floating market rate.
That step was necessary because
of the covenantal nature of the MPP and the fact that clergy have no
choice but to annuitize, says Woody Bedell, chief strategic relations
officer with the pension board. Otherwise, there may have been a "rush
to retirement" among clergy if the MPP had gone to a market rate
effective July 1.
Lay employees, on the other hand, have a
voluntary annuity. That means they don't have to annuitize any of the
money upon retirement but can take a lump-sum distribution and give it
to an insurance company or mutual fund for investing. They can also keep
the money with the board until annuity rates improve.
elect to annuitize, but they're not forced to," Bedell says. In fact,
"very few people" have converted to annuities historically, he says. "In
the last two years, only 11 percent of all SRBP accounts have been
annuitized." The SRBP, or Staff Retirement Benefits Program, is one of
two pension plans for church lay employees, the other being the
Cumulative Pension and Benefit Fund.
Because of that flexibility,
lay employees who retire after July 2 and choose the annuity option
will have their entire account balances converted at the market rate.
Their pre-July contributions are not locked in at 8 percent.
"The market rate is competitive," Bedell says. It is what most other financial institutions would offer, he says.
clergy plan is much more restrictive than the lay plans, he says. In
addition to having a mandatory annuity, clergy retirees can't touch
their MPP portion until age 62, though they can get their Personal
Investment Plan portion. Moreover, the laity pension plans are based on
12 percent of the individual's compensation, whereas the clergy plan is
typically 12 percent of the denominational average compensation.
with the Board of Global Ministries and its Women's Division have
raised concerns about the changes. Barbara Boigegrain, top staff
executive of the pension agency, says she will present those concerns to
her executive committee March 20. The committee will decide whether to
revisit the annuity policy changes.
Another change: After Jan. 1,
2004, the board will outsource annuities for CPBF, SRBP and PIP
balances to an insurance company chosen "for its outstanding service and
financial strength," according to a letter written by Lisa Schilling,
the board's managing actuary. "The monthly benefit will be a monthly
rate determined by the insurance company."
The new voluntary
annuities will be outsourced because "you don't want to put that
potential liability on the conferences," Bedell says. Instead, that
liability should rest with an insurance company that's willing to take
the risk on behalf of participants.
Voluntary annuities that have already been set up before Jan. 1 will be outsourced at a later time, he says.
participants need not worry about the rates on those pre-existing
annuities. "Once the rates have been set, they're set," Bedell says.
"The rates on those existing annuities would not change."
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