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Pension agency considers investment plan changes

9/26/2003 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.

A UMNS Report By John Lovelace

LINK: Click to open full size version of image
General Board of Pensions and Health Benefits. Photo number W03020. Accompanies UMNS #459
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

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 and

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*Lovelace is editor emeritus of the Dallas-based United Methodist Reporter.

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