wfn.org | Pension Board Recommends 11 Percent Apportionment,

[PCUSA.NEWS@pcusa.org]

4-March-1998 
98078 
 
         Pension Board Recommends 11 Percent Apportionment, 
            Revamps Major Medical Plan to Spur PPO Use 
 
                     by Jerry L. Van Marter 
 
PHILADELPHIA-The Presbyterian Church (U.S.A.) Board of Pensions (BOP), 
responding to what its investment chief Judith Freyer called "three years 
of off-the-chart success" in the stock market, has voted to grant an 
experience apportionment of 11 percent for 1998 for retired, active, 
inactive and disabled members of the church's pension plan. 
 
    Disabled plan members will be granted a 4 percent increase in their 
disability benefits plus the 11 percent increase in accrued pension 
credits. 
 
    At an unusually busy Feb. 26-28 meeting, the Board also approved a 
revamping of its major medical plan to encourage greater use of managed 
care programs around the country; kept dues at 28 percent for 1999 - 16 
percent for major medical coverage and 12 percent for pensions; voted to 
maintain a major medical dues cap equal to 150 percent of the churchwide 
median salary for pastors serving churches (currently $36,000) and to grant 
a .5 percent major medical dues credit to church employers next year; 
approved $2.3 million in loan guarantees for new construction at the 
Westminster Gardens retirement facility in Duarte, Calif.; and increased 
the amounts plan members will pay for prescription drugs in 1999. 
 
              Experience apportionment measure barely passes 
 
    If approved by the upcoming General Assembly in Charlotte, N.C., the 
apportionment -- an 11 percent increase in the pensions of retired BOP plan 
members and an 11 percent increase in the pension credits of active, 
inactive and disabled members - will be the largest since 1987. 
 
    Though the 11 percent apportionment was favored by Board staff, the 
measure barely passed, 14-13, with opposition led by members of the Board's 
Investment Committee.  Calling his committee "the guardian of the engine of 
future growth," Investment Committee chair Christopher "Kit" Smith of 
Wilton, Conn., urged the Board to be more cautious in granting an 
experience apportionment, thereby preserving a heftier contingency reserve. 
 
    "The goal should be to stay ahead of inflation, and in the last 10 
years the plan has been very generous to its members," Smith insisted. 
With stock market earnings booming, Smith said, this is the time for the 
BOP to build its reserves up to the 20 percent [of plan liabilities] upper 
limit it has set.  "If we don't fill up the reserves now, when times are 
very, very good, then when will we?" he asked. 
 
    John Killian of Harrisburg, Pa., a member of the Board's Pension 
Committee, which brought the 11 percent recommendation, countered that the 
Board's reserve levels are more than adequate.  Noting that prior to any 
apportionment the Board's reserves were above 30 percent (almost $1 
billion), Killian acknowledged that arguing over such large apportionment 
recommendations "is a nice problem to have." 
 
    The 11 percent apportionment will reduce reserve levels to 17.9 
percent.  The Board's policy is to maintain a reserve of 10-20 percent. 
 
    Killian said, "We should be proud that the plan is sound whatever the 
apportionment."  In arguing for the 11 percent apportionment - the 
Investment Committee suggested 9 percent plus a one-time 1 percent pension 
dues credit - Killian said, "Our members want us to give back as much as we 
can while preserving the security of the plan - I'm overjoyed by the staff 
recommendation." 
 
         Greater participation in PPOs sought by major medical changes 
 
    Citing figures showing that the use of the Board's PPO network of 
hospitals and physicians (Private Health Care Systems, Inc.) by about a 
third of plan members saved the BOP $9 million in 1997, the Board's 
Healthcare Committee proposed a set of incentives it hopes will greatly 
expand members' usage of network providers. 
 
    To avoid discriminating against members without access to network 
providers (primarily members living in rural areas), plan features approved 
by the Board will be essentially the same for members in non-PPO areas as 
for members who utilize network providers in areas where they are 
available. 
 
    Also, if members living in non-network areas have to travel to network 
areas for medical treatment, they will be subject to the network 
incentives. 
 
    The major medical deductible will be 1 percent for network users versus 
1.5 percent for those using out-of-network providers.  Copayment rates will 
be 80/20 percent for network users versus 70/30 percent for out-of-network 
providers, and the copayment limit will be 4 percent of effective salary 
for network users versus 6 percent for the cost of out-of-network 
providers. 
 
    "We want plan members to have the option to use non-network providers," 
said Beach Hall of Rogers City, Mich., chair of the Healthcare Committee. 
"But if they do, they must absorb the cost of doing so." 
 
    Margaret Mellen, vice president for healthcare for the Board, said that 
currently about 50 percent of hospital charges and 30 percent of physician 
charges come through the PPO network providers, even though between 80 and 
90 percent of plan members have access to the PPO network.  "If we could 
get network usage up to 50 percent, it would save the Board 4 percent on 
all paid claims, and 70 percent network usage would save us 6 percent," she 
explained.  Claims in 1997 totaled more than $61 million. 
 
            Line held on dues; dues caps and credits maintained 
 
    With major medical costs seemingly well contained, the Board voted to 
keep major medical dues at the same 16 percent level that has been in 
effect for several years.  The major medical fund balance, which 10 years 
ago was almost $20 million in the red, grew to $35.8 million by the end of 
1997 - a $3.8 million gain over 1996. 
 
    The positive major medical results enabled the Board to grant a .5 
percent dues credit to employing organizations in 1999 - the third 
consecutive year a credit has been given.  The major medical dues credit is 
1 percent this year and was .5 percent in 1997. 
 
    "This gives churches more money to dedicate to mission, and I hope we 
aggressively communicate this news to the churches," Hall noted. 
 
    In its most controversial move, the Healthcare Committee and the Board 
approved continuation in 1999 of a cap on major medical dues equal to 150 
percent of the churchwide median salary for pastors serving churches 
(currently $36,000).  The cap is designed to make participation in the 
major medical plan more attractive to employing organizations with a 
greater number of highly paid employees, such as Presbyterian theological 
institutions, the Presbyterian Church (U.S.A.) Foundation and the Board of 
Pensions. 
 
    Only Columbia Theological Seminary among theological institutions is 
still in the BOP plan, though Board president John Detterick said that, as 
a result of the imposition of the cap, "hopeful" discussions have begun 
with two other seminaries about returning to the BOP plan. 
 
    Participation in the BOP benefits programs is mandatory only for 
installed pastors serving churches.  In Healthcare Committee deliberations, 
committee members the Rev. Ed Brandt of East Earl, Pa., and the Rev. Adele 
Langworthy of Long Beach, Calif., argued that the dues cap is a benefit for 
employing organizations that is not available to small churches. 
 
    Mellen responded that "it's a tough call - we're trying to keep 
wealthier employers in the plan and thereby maintain the current subsidy 
that they provide.  If we do the absolute right thing and eliminate the 
cap, then they go somewhere else for medical coverage and we lose their 
subsidy altogether." 
 
         Master plan for Westminster Gardens approved "in concept" 
 
    The Board adopted a master plan for the sprawling Westminster Gardens 
retirement complex in Duarte, Calif., "in concept."  The endorsement 
stipulates that specific phases of the expansion of the facility "will be 
presented and approved by the Board in advance of their implementation." 
 
    The master plan includes construction of new living units, upgrading of 
existing units and construction of a new health services center. The 
Board's action included a loan guarantee of $2.3 mllion to cover the costs 
of the 19 new living units that are part of the plan. 
 
             Costs increase for prescription drug program 
 
    The Board approved increases for 1999 for participation in its 
prescription drug program, which has become the most financially 
troublesome aspect of the major medical plan. 
 
    Prescription drug costs rose more than 25 percent in 1997, and Hall 
said drug costs are the "chief culprit" behind the chronic losses faced by 
the Board's Medicare Supplement program.  More than half the costs incurred 
in the Medicare Supplement program are for prescription drugs. 
 
    The copays for generic prescription drugs will rise from $5 to $6 and 
the copays for brand-name prescription drugs will go up from $12 to $14 in 
1999.  The copayment limit will rise from $500 to $600 next year, including 
the deductible, for Medicare Supplement members and from $500 to $600, 
excluding the deductible, for active and continuation members of the major 
medical plan.  Copays for the mail order drug program, through Walgreens, 
will also go up - from $10 to $15 for generic drugs and from $20 to $30 for 
brand-name prescriptions. 
 
              Detterick sets stage for "visioning" meeting 
 
    With the Board scheduled to spend two days later this spring 
"visioning" its work into the 21st century, Detterick posed five questions 
in light of the "community nature" of the plan that he  would like Board 
members to think about and discuss with members of their home churches in 
preparation for the May 26-27 gathering in St. Louis: 
 
   *   How do church members experience community in the Presbyterian 
       Church (U.S.A.)? 
   *   What terms might they use to describe that sense of community? 
   *   What would church members list as the three most significant 
       benefits flowing from their membership in the Presbyterian Church 
      (U.S.A.)? 
   *   What aspects of the benefits plans of the Board of Pensions do they 
       find most valuable? 
   *   What aspects of the benefits plans do they find least valuable? 
 
    "After five years of focus on improved delivery of services, it's now 
time to focus on the products and services themselves," Detterick noted. 
"And the critical question for us is: How can we make the community nature 
of the benefits plans more relevant to the church in the 21st century?" 

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