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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 Service

Changes in the United Methodist Church's annuity policy will affect lay and clergy retirees in different ways.

The 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.

Because 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.
"They can 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.

The 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.

Executives 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.

However, 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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