9/26/2003 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.
A UMNS Report
By John Lovelace
General Board of Pensions and Health Benefits. Photo number W03020. Accompanies UMNS #459
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Not even its $10 billion in holdings can shield the
United Methodist clergy pension system from the onrush of baby
boomer-era retirements, particularly when exacerbated by a long-lived
bear market.
Boomers and their predecessor, older retirees are
taking more money out of the system than current participants are
putting in. This is forcing the church's Board of Pension and Health
Benefits to establish increasingly higher levels of reserves.
After
extended study, the board's Asset/Liability Committee has unanimously
recommended that the board replace its reserve-based Diversified
Investment Fund with the Multiple Asset Fund that the board established
some 18 months ago. A board spokesman gave the proposal a "better than
50 percent" chance of approval at the board's meeting Nov. 21-22 in
Chicago. Actual implementation is not expected until after Jan. 1.
A
question-and-answer discussion on the board's Web site explains that a
market-based fund is like a traditional mutual fund, with assets subject
to daily valuation and change.
The main difference between a
market-based fund and a reserve fund, the site says, is that a
reserve-based fund absorbs "shocks" caused by aberrant moves in the
value of the assets while market-based funds can experience gains and
losses more readily.
The United Methodist Diversified Investment
Fund absorbs rapid changes in market value via a reserve cushion of 14
percent of the fund's assets. But last March, when the market was at its
lowest, the fund fell to about 84 cents of assets for each dollar it
owed participants, or 2 percent below the built-in cushion of 14
percent. Nonetheless, the board has continued to credit each
participating account at full value. As of Sept. 12, thanks to an
improved market, the reserve has a positive balance of 2 percent, or
$1.02 for each dollar owed to participants.
"The DIF has served
the denomination well by allowing participants to fully benefit from the
market gains during the prolonged bull market while also protecting
participants from severe market conditions," said Gale Whitson-Schmidt, a
staff executive and the treasurer for the board in Evanston, Ill.
"However, participants ultimately bear the risk of sustained negative
markets, and the reserve nature of DIF provides less than adequate
security and support to all participants of a mature pension plan."
About
65 percent of assets in both the Diversified Investment Fund and the
Multiple Asset Fund are invested in U.S. and international stocks and 35
percent in U.S. and international fixed income investments. Board data
show the Multiple Asset Fund has outperformed its industry benchmarks
since its launch. More information is available at
http://www.gbophb.org/invest/funds/maf.html.
In the Web site
Q&A, the Asset/Liability Committee "recognizes that many
participants have a low tolerance for market risk and are nervous about
the possible reduction in the value of their accounts. ... (The
committee) believes that participants have been exposed to market risk
all along. The nature of the reserve fund masks that exposure. ... (The
committee) believes that participants who continue to maintain a
long-term investment in a market-based fund will have the best chance of
maintaining their lifestyle into retirement."
The approximately
21,000 current retirees and spouses will not be affected by the proposed
change, and a low-risk fund option will be available to some 3,600
participants over age 60. Normal retirement age for United Methodist
clergy is 65.
If the board of directors approves the committee's
commendation, the first funds to be moved will be balances in the
Ministerial Pension Plan (25,500 participants, $3.3 billion in assets)
and the Staff Retirement Benefits Program (1,100 participants, $110
million in assets). An additional $653 million is already in the
Multiple Asset Fund via participants' Personal Investment Plans.
Bishop
William W. Morris, who leads the church's Nashville (Tenn.) Area, is
chairman of the 39-member board. William Green of Stamford, Conn., leads
the seven-member Asset/Liability Committee.
Details on the
proposed change are available at
http://www.gbophb.org/news/releases/20030912pr.html and
http://www.gbophb.org/news/releases/20030912qa.html.
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*Lovelace is editor emeritus of the Dallas-based United Methodist Reporter.
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