wfn.org | Cautious Pension Board Recommends 10 Percent Apportionment

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11-March-1999 
99099 
 
    Cautious Pension Board Recommends 
    10 Percent Apportionment 
 
    by Jerry L. Van Marter 
 
PHILADELPHIA - Buoyed by a strong 1998 investment return but uneasy about 
the volatile 1999 stock market, the Presbyterian Church (U.S.A.) Board of 
Pensions recommended March 6 that participants in the church's pension plan 
be granted an experience apportionment for 1999 of 10 percent. 
 
    If approved, the apportionment will mean a 10 percent increase in 
pensions for retired plan members and a 10 percent increase in accrued 
pension credits for active, vested inactive and disabled members. An 
experience apportionment of 11 percent was granted by last year's General 
Assembly. 
 
    The apportionment resulted, at least in part, from another strong 
performance by the board's investments in 1998. Investment Committee chair 
Christopher Smith of Wilton, Conn., reported that the board's return in 
1998 reached 15.5 percent, raising the value of the portfolio to more than 
$5 billion. 
 
    Correspondingly, the contingency reserves for the pension fund rose to 
record levels - $1.24 billion or 35 percent of the plan's liabilities. Some 
had speculated that such robust health would result in an even heftier 
experience apportionment. The board's "guidelines" call for a contingency 
reserve of 10 percent to 20 percent. 
 
    In a joint meeting of the Investment and Pension committees on March 5, 
Smith said that if the Pension Committee recommended a 13 percent 
apportionment - which would have reduced the reserve to 19.8 percent - "it 
(the full board meeting the next day) could be a very short meeting." 
 
    Instead, the Pension Committee - which presents the experience 
apportionment recommendation to the board - took an uncharacteristically 
more conservative tack than the Investment Committee and came in with the 
10 percent proposal, which passed easily. With the 10 percent 
apportionment, the contingency reserve will be at 23 percent, three percent 
above the maximum "guideline." 
 
    In making their recommendation, Pension Committee members seemed to 
heed cautionary advice given by Investment Committee members. Smith pointed 
out that the stock market experienced inordinately large individual gains 
and losses on nearly half of all trading days of 1998. Investment Committee 
member Deborah Kuenstner of Newton, Mass., commented, "I was nervous [about 
the market] last year. ... I'm more nervous this year." 
 
    Pension Committee members said they wished to reserve some of the 
excess contingency for future benefits improvements. However, they turned 
down three proposed changes, presenting no improvements to the board for a 
vote. The committee said it is considering a special meeting to consider 
specific benefits changes. 
 
    The committee rejected a proposal that would have increased the 
survivor's pension benefit from 50 percent to 60 percent of the deceased 
member's pension or accrued pension credits at the time of death. Asked 
why, Pension Committee member Ross Spencer of Chicago explained that the 
loss of the housing allowance exclusion  when a member dies has already 
been allowed for in the calculation of the survivor's pension, so 
increasing the benefit "would constitute a double credit." 
 
    The committee also turned down a "guaranteed benefit option" in which a 
retiree could choose an adjusted "guaranteed pension" for 10 years rather 
than the normal pension. If the retiree chose this option, the member would 
receive a lower, actuarially-adjusted pension. If the retiree died before 
the 10 years was up, his or her beneficiary would receive the balance of 
the guaranteed pension in a lump sum. If the member lived beyond the 10 
years, the pension would continue until death. 
 
    The committee rejected the "guaranteed benefit option" on the grounds 
that it would move the plan too far in the direction of a "defined 
contribution" program rather than a "defined benefit" program, violating 
the philosophy of the church's benefits plans. 
 
    The committee tabled for further discussion a "late retirement option," 
in which plan members wishing to work beyond 65 would receive a 
proportionately higher pension upon retiring later. After considering the 
pros and cons of "encouraging" church employees to work later in life by 
enhancing their pensions in such a way, committee members decided they 
needed more time to examine the "late retirement option." 
 
    Pension Committee and board vice-chair John Killian of Harrisburg, Pa., 
acknowledged that the 10 percent experience apportionment recommendation 
"is very conservative," but argued that leaving a cushion above the maximum 
reserve guideline "puts us in a position to consider other benefits, 
particularly the late retirement option." 
 
    Smith praised that approach. "I believe we should target the use of 
surplus reserves to the greatest needs of our members rather than large 
across-the-board increases," he said. 
 
    In that vein, the board approved an experience apportionment of 3 
percent in disability benefits for those receiving such benefits as of Dec. 
31, 1998. 
 
    The board, which in years past had to address sizable deficits in its 
medical plan, extended a trend of the last few years and approved several 
dues credits and benefits as the major medical fund continues to enjoy 
robust health. 
 
    With managed care, which the board has pursued more actively for the 
last several years, and other measures keeping costs under control, the 
board voted to keep medical dues steady at 16 percent of effective salary, 
and for the fourth successive year approved a medical dues credit. For the 
year 2000 the credit is one-half of one percent. 
 
    The board also kept in place a cap on dues of 150 percent of the 
church-wide median salary for pastors serving churches, or $56,250 for 
1999. The cap was instituted last year to provide some relief to 
higher-paying employers, such as theological institutions and very large 
churches. 
 
    The cap rankled at least one board member, the Rev. Alexander McLachlan 
of Duncanville, Texas. "Small churches cannot afford salary increases 
because they result in higher dues, but large churches can raise salaries 
without a dues increase," he argued. "This is discrimination in favor of 
the better-off and is contrary to the community nature of our plan." 
McLachlan argued futilely for a higher dues credit rather than the dues 
cap. 
 
    Responding to one of the most frequently-heard complaints about its 
managed care programs, the board voted to provide credits toward medical 
deductibles. The net effect will be to reduce deductibles for the year 2000 
from 1 percent to one-half of one percent for network or non-network 
services, and from 1.5 percent to 1 percent for out-of-network services. 
 
    The board also voted to reduce the co-payment maximums for the year 
2000 from 4 percent to 3 percent for network and non-network services, and 
from 6 percent to 4 percent for out-of-network services. 
 
    The combination of dues credits, caps, deductible credits and 
co-payment reductions was, according to Healthcare Committee chair Beach 
Hall of Rogers City, Mich., "an attempt to share the strong reserves of the 
major medical fund between members and employers." 
 
    Brenda Jeter of Memphis, chair of the board's Audit Committee, reported 
that external auditors Deloitte and Touche had complimented the board's 
work toward becoming Y2K compliant. 
 
    The board reelected Gloria Wilson of Tempe, Ariz., as its chair for 
1999-2000, and re-elected Killian as first vice chair. The Rev. Ed Brandt 
of East Earl, Pa., was elected second as vice chair. 

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